Investors Interested In Saudi Reinsurance Company's (TADAWUL:8200) Revenues
Saudi Reinsurance Company's (TADAWUL:8200) price-to-sales (or "P/S") ratio of 2.8x may look like a poor investment opportunity when you consider close to half the companies in the Insurance industry in Saudi Arabia have P/S ratios below 0.8x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
Check out our latest analysis for Saudi Reinsurance
What Does Saudi Reinsurance's Recent Performance Look Like?
There hasn't been much to differentiate Saudi Reinsurance's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Saudi Reinsurance's future stacks up against the industry? In that case, our free report is a great place to start.How Is Saudi Reinsurance's Revenue Growth Trending?
Saudi Reinsurance's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 17%. The latest three year period has also seen an excellent 121% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 25% per annum over the next three years. With the industry only predicted to deliver 18% each year, the company is positioned for a stronger revenue result.
With this information, we can see why Saudi Reinsurance is trading at such a high P/S compared to the industry. 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-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our look into Saudi Reinsurance shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
Before you take the next step, you should know about the 3 warning signs for Saudi Reinsurance (1 doesn't sit too well with us!) that we have uncovered.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.