Nasdaq
華爾街日報Arabian Plastic Industrial Company Limited's (TADAWUL:9548) 27% Jump Shows Its Popularity With Investors
Arabian Plastic Industrial Company Limited (TADAWUL:9548) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 95%.
After such a large jump in price, given around half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 17x, you may consider Arabian Plastic Industrial as a stock to potentially avoid with its 19.9x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
With earnings growth that's exceedingly strong of late, Arabian Plastic Industrial has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for Arabian Plastic Industrial
How Is Arabian Plastic Industrial's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as high as Arabian Plastic Industrial's is when the company's growth is on track to outshine the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 58% last year. The latest three year period has also seen an excellent 110% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Comparing that to the market, which is only predicted to deliver 12% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.
With this information, we can see why Arabian Plastic Industrial is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.
What We Can Learn From Arabian Plastic Industrial's P/E?
Arabian Plastic Industrial shares have received a push in the right direction, but its P/E is elevated too. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Arabian Plastic Industrial maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.
You need to take note of risks, for example - Arabian Plastic Industrial has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.
Of course, you might also be able to find a better stock than Arabian Plastic Industrial. 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.