SAL Saudi Logistics Services Company's (TADAWUL:4263) Business Is Yet to Catch Up With Its Share Price

With a price-to-earnings (or "P/E") ratio of 31.7x SAL Saudi Logistics Services Company (TADAWUL:4263) may be sending bearish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios under 24x and even P/E's lower than 16x 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 as high as it is.

With earnings growth that's superior to most other companies of late, SAL Saudi Logistics Services has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for SAL Saudi Logistics Services

If you'd like to see what analysts are forecasting going forward, you should check out our free report on SAL Saudi Logistics Services.

How Is SAL Saudi Logistics Services' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as SAL Saudi Logistics Services' is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 58% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 92% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 9.1% per year during the coming three years according to the four analysts following the company. With the market predicted to deliver 14% growth each year, the company is positioned for a weaker earnings result.

With this information, we find it concerning that SAL Saudi Logistics Services is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On SAL Saudi Logistics Services' 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.

Our examination of SAL Saudi Logistics Services' analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for SAL Saudi Logistics Services with six simple checks will allow you to discover any risks that could be an issue.

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.