Saudi Azm for Communication and Information Technology Company (TADAWUL:9534) Not Lagging Market On Growth Or Pricing

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 22x, you may consider Saudi Azm for Communication and Information Technology Company (TADAWUL:9534) as a stock to avoid entirely with its 58.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Saudi Azm for Communication and Information Technology has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Saudi Azm for Communication and Information Technology

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Saudi Azm for Communication and Information Technology will help you shine a light on its historical performance.

How Is Saudi Azm for Communication and Information Technology's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Saudi Azm for Communication and Information Technology's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 25%. The latest three year period has also seen an excellent 125% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Saudi Azm for Communication and Information Technology's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Saudi Azm for Communication and Information Technology's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Saudi Azm for Communication and Information Technology revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Saudi Azm for Communication and Information Technology that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.