The Power and Water Utility Company for Jubail and Yanbu's (TADAWUL:2083) Business And Shares Still Trailing The Market

The Power and Water Utility Company for Jubail and Yanbu's (TADAWUL:2083) price-to-earnings (or "P/E") ratio of 17.2x might make it look like a buy right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios above 24x and even P/E's above 39x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Power and Water Utility Company for Jubail and Yanbu certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Power and Water Utility Company for Jubail and Yanbu

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.

How Is Power and Water Utility Company for Jubail and Yanbu's Growth Trending?

Power and Water Utility Company for Jubail and Yanbu's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 41%. Pleasingly, EPS has also lifted 300% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 11% as estimated by the one analyst watching the company. That's shaping up to be materially lower than the 16% growth forecast for the broader market.

In light of this, it's understandable that Power and Water Utility Company for Jubail and Yanbu's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Power and Water Utility Company for Jubail and Yanbu maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Power and Water Utility Company for Jubail and Yanbu, and understanding should be part of your investment process.

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 sit on P/E's below 20x 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.