Mohammed Hasan AlNaqool Sons Co. (TADAWUL:9514) Stock Rockets 27% As Investors Are Less Pessimistic Than Expected
Mohammed Hasan AlNaqool Sons Co. (TADAWUL:9514) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 2.3% isn't as attractive.
Following the firm bounce in price, Mohammed Hasan AlNaqool Sons may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 41.4x, since almost half of all companies in Saudi Arabia have P/E ratios under 17x and even P/E's lower than 12x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.
Mohammed Hasan AlNaqool Sons certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.
View our latest analysis for Mohammed Hasan AlNaqool Sons
How Is Mohammed Hasan AlNaqool Sons' Growth Trending?
The only time you'd be truly comfortable seeing a P/E as steep as Mohammed Hasan AlNaqool Sons' is when the company's growth is on track to outshine the market decidedly.
If we review the last year of earnings growth, the company posted a terrific increase of 129%. However, this wasn't enough as the latest three year period has seen a very unpleasant 35% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
In contrast to the company, the rest of the market is expected to grow by 12% over the next year, which really puts the company's recent medium-term earnings decline into perspective.
With this information, we find it concerning that Mohammed Hasan AlNaqool Sons is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.
The Final Word
The strong share price surge has got Mohammed Hasan AlNaqool Sons' P/E rushing to great heights as well. 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 Mohammed Hasan AlNaqool Sons currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
Before you settle on your opinion, we've discovered 3 warning signs for Mohammed Hasan AlNaqool Sons (1 is a bit unpleasant!) that you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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