There's Reason For Concern Over Abdullah Saad Mohammed Abo Moati for Bookstores Company's (TADAWUL:4191) Massive 25% Price Jump

Abdullah Saad Mohammed Abo Moati for Bookstores Company (TADAWUL:4191) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 58%.

Following the firm bounce in price, given close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 17x, you may consider Abdullah Saad Mohammed Abo Moati for Bookstores as a stock to avoid entirely with its 37.5x 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 so lofty.

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Abdullah Saad Mohammed Abo Moati for Bookstores has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Abdullah Saad Mohammed Abo Moati for Bookstores

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Abdullah Saad Mohammed Abo Moati for Bookstores' earnings, revenue and cash flow.

Is There Enough Growth For Abdullah Saad Mohammed Abo Moati for Bookstores?

The only time you'd be truly comfortable seeing a P/E as steep as Abdullah Saad Mohammed Abo Moati for Bookstores' is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 9.7% last year. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the market, which is predicted to deliver 12% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we find it concerning that Abdullah Saad Mohammed Abo Moati for Bookstores is trading at a P/E higher than the market. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Abdullah Saad Mohammed Abo Moati for Bookstores' P/E

Abdullah Saad Mohammed Abo Moati for Bookstores' P/E is flying high just like its stock has during the last month. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Abdullah Saad Mohammed Abo Moati for Bookstores revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Abdullah Saad Mohammed Abo Moati for Bookstores that you should be aware of.

If you're unsure about the strength of Abdullah Saad Mohammed Abo Moati for Bookstores' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.