Mobile Telecommunications Company Saudi Arabia's (TADAWUL:7030) Low P/S No Reason For Excitement

Mobile Telecommunications Company Saudi Arabia's (TADAWUL:7030) price-to-sales (or "P/S") ratio of 0.9x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Wireless Telecom industry in Saudi Arabia have P/S ratios greater than 1.4x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Mobile Telecommunications Company Saudi Arabia

What Does Mobile Telecommunications Company Saudi Arabia's P/S Mean For Shareholders?

Mobile Telecommunications Company Saudi Arabia's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Mobile Telecommunications Company Saudi Arabia will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Mobile Telecommunications Company Saudi Arabia's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.8% last year. Revenue has also lifted 30% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 3.4% per annum during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 6.1% each year, which is noticeably more attractive.

With this in consideration, its clear as to why Mobile Telecommunications Company Saudi Arabia's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Mobile Telecommunications Company Saudi Arabia's P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Mobile Telecommunications Company Saudi Arabia's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 4 warning signs for Mobile Telecommunications Company Saudi Arabia (1 makes us a bit uncomfortable!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, 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.