Investors Interested In The Power and Water Utility Company for Jubail and Yanbu's (TADAWUL:2083) Earnings

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 24x, you may consider The Power and Water Utility Company for Jubail and Yanbu (TADAWUL:2083) as a stock to avoid entirely with its 38.9x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Power and Water Utility Company for Jubail and Yanbu's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Power and Water Utility Company for Jubail and Yanbu

Want the full picture on analyst estimates for the company? Then our free report on Power and Water Utility Company for Jubail and Yanbu will help you uncover what's on the horizon.

Is There Enough Growth For Power and Water Utility Company for Jubail and Yanbu?

In order to justify its P/E ratio, Power and Water Utility Company for Jubail and Yanbu would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 38%. As a result, earnings from three years ago have also fallen 42% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 117% as estimated by the dual analysts watching the company. With the market only predicted to deliver 19%, the company is positioned for a stronger earnings result.

With this information, we can see why Power and Water Utility Company for Jubail and Yanbu is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

It's argued the price-to-earnings 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 Power and Water Utility Company for Jubail and Yanbu's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Power and Water Utility Company for Jubail and Yanbu (including 1 which can't be ignored).

Of course, you might also be able to find a better stock than Power and Water Utility Company for Jubail and Yanbu. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.