Why Investors Shouldn't Be Surprised By Mobile Telecommunications Company Saudi Arabia's (TADAWUL:7030) Low P/E

With a price-to-earnings (or "P/E") ratio of 9.2x Mobile Telecommunications Company Saudi Arabia (TADAWUL:7030) may be sending very bullish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios greater than 28x and even P/E's higher than 44x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

With earnings growth that's superior to most other companies of late, Mobile Telecommunications Company Saudi Arabia has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Mobile Telecommunications Company Saudi Arabia

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mobile Telecommunications Company Saudi Arabia.

Is There Any Growth For Mobile Telecommunications Company Saudi Arabia?

The only time you'd be truly comfortable seeing a P/E as depressed as Mobile Telecommunications Company Saudi Arabia's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 131% last year. Pleasingly, EPS has also lifted 272% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 11% per year during the coming three years according to the seven analysts following the company. Meanwhile, the broader market is forecast to expand by 17% each year, which paints a poor picture.

In light of this, it's understandable that Mobile Telecommunications Company Saudi Arabia's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Mobile Telecommunications Company Saudi Arabia's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Mobile Telecommunications Company Saudi Arabia maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 4 warning signs for Mobile Telecommunications Company Saudi Arabia (2 are concerning!) that you need to take into consideration.

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.