With an average price-to-sales (or “P/S”) ratio of close to 1.1x in the consumer durables industry in Saudi Arabia, you could be forgiven for feeling indifferent about Naseej International Trading Company’s (TADAWUL:1213) P/S ratio of 1.5x. While this may not raise any eyebrows, if the P/S ratio is not justified, investors may miss a potential opportunity or ignore looming disappointment.
See our latest analysis for Naseej International Trading
How has Naseej International Trading performed recently?
The revenue growth achieved at Naseej International Trading over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors believe this respectable revenue growth may not be enough to outperform the broader industry in the near future. If you like the company, you’d hope this isn’t the case, so you can potentially pick up some shares while it’s not completely out of favor.
We don’t have analyst forecasts, but you can see how the latest trends are setting the company up for the future by checking ours for free Naseej International Trading’s earnings, revenue and cash flow report.
Do the revenue forecasts match the P/S ratio?
The only time you would be comfortable seeing a P/S like Naseej International Tradings is when the company’s growth closely follows the industry.
If we review the last year of revenue growth, the company had a worthy increase of 8.4%. Happily, revenue is also up 38% overall from three years ago, thanks in part to growth over the past 12 months. Shareholders would therefore certainly have welcomed these medium-term growth rates.
Compared to the industry, which is only expected to deliver 9.2% growth in the next 12 months, the company’s momentum is stronger based on the latest medium-term annual revenue results.
In view of this, it is strange that Naseej International Trading’s P/S is in line with the majority of other companies. It may be that most investors are not convinced that the company can maintain its recent growth rates.
What does Naseej International Trading’s P/S mean to investors?
Typically, we would caution against reading too much into price-to-sales ratios when making investment decisions, even though it can reveal a lot about what other market participants think about the company.
We have noted that Naseej International Trading is currently trading at a lower than expected P/S as its past three-year growth is higher than the broader industry forecast. When we see strong revenue with faster growth than the industry, we can only assume that potential risks are what could put pressure on the P/S ratio. While recent revenue trends over the recent medium term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue volatility in the future.
A lot of potential risks can sit on a company’s balance sheet. You can assess many of the most important risks through our for free balance sheet analysis for Naseej International Trading with six simple controls.
If companies with solid past earnings growth are on the wayyou might like to see this for free collection of other companies with strong earnings growth and low P/E ratios.
Valuation is complex, but we help make it simple.
Find out if Naseej International Trading is potentially overvalued or undervalued by checking out our extensive analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.
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This article by Simply Wall St is of a general nature. We only provide commentary based on historical data and analyst forecasts 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 shares and does not take into account your goals or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account recent price-sensitive company announcements or qualitative material. Simply Wall St has no position in any listed stocks.