Power and Water Utility Company for Jubail and Yanbu's (TADAWUL:2083) Shares Lagging The Industry But So Is The Business

With a price-to-sales (or "P/S") ratio of 1.4x Power and Water Utility Company for Jubail and Yanbu (TADAWUL:2083) may be sending bullish signals at the moment, given that almost half of all the Integrated Utilities companies in Saudi Arabia have P/S ratios greater than 1.9x and even P/S higher than 5x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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

What Does Power and Water Utility Company for Jubail and Yanbu's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Power and Water Utility Company for Jubail and Yanbu has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Power and Water Utility Company for Jubail and Yanbu.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Power and Water Utility Company for Jubail and Yanbu's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.4% last year. Revenue has also lifted 12% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 5.0% during the coming year according to the only analyst following the company. That's not great when the rest of the industry is expected to grow by 3.8%.

With this in consideration, we find it intriguing that Power and Water Utility Company for Jubail and Yanbu's P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Power and Water Utility Company for Jubail and Yanbu's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Power and Water Utility Company for Jubail and Yanbu's analyst forecasts revealed that its outlook for shrinking revenue 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 there's material change, it's hard to envision a situation where the stock price will rise drastically.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Power and Water Utility Company for Jubail and Yanbu (2 are significant!) that you should be aware of before investing here.

Of course, profitable companies with a history of great earnings growth are generally safer bets. 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.