The Power and Water Utility Company for Jubail and Yanbu's (TADAWUL:2083) Share Price Matching Investor Opinion

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 22x, you may consider The Power and Water Utility Company for Jubail and Yanbu (TADAWUL:2083) as a stock to potentially avoid with its 31.6x P/E ratio. 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.

Power and Water Utility Company for Jubail and Yanbu could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. 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.

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

The only time you'd be truly comfortable seeing a P/E as high as Power and Water Utility Company for Jubail and Yanbu's is when the company's growth is on track to outshine the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 38%. This means it has also seen a slide in earnings over the longer-term as EPS is down 42% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 83% during the coming year according to the one analyst following the company. With the market only predicted to deliver 15%, 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 Key Takeaway

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

We've established that Power and Water Utility Company for Jubail and Yanbu maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Power and Water Utility Company for Jubail and Yanbu is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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.