Jahez International Company for Information Systems Technology (TADAWUL:9526) shares have had a horrible month, losing 27% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 50% share price decline.
In spite of the heavy fall in price, Jahez International Company for Information Systems Technology’s price-to-earnings (or “P/E”) ratio of 90.6x might still make it look like a strong sell right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios below 24x and even P/E’s below 18x are quite common. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Jahez International Company for Information Systems Technology could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
Check out our latest analysis for Jahez International Company for Information Systems Technology
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Does Growth Match The High P/E?
There’s an inherent assumption that a company should far outperform the market for P/E ratios like Jahez International Company for Information Systems Technology’s to be considered reasonable.
If we review the last year of earnings, dishearteningly the company’s profits fell to the tune of 71%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Accordingly, shareholders probably wouldn’t have been overly satisfied with the unstable medium-term growth rates.
Turning to the outlook, the next three years should generate growth of 69% per annum as estimated by the five analysts watching the company. That’s shaping up to be materially higher than the 15% each year growth forecast for the broader market.
With this information, we can see why Jahez International Company for Information Systems Technology is trading at such a high P/E compared to the market. Apparently shareholders aren’t keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
A significant share price dive has done very little to deflate Jahez International Company for Information Systems Technology’s very lofty P/E. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We’ve established that Jahez International Company for Information Systems Technology maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren’t under threat. Unless these conditions change, they will continue to provide strong support to the share price.
You should always think about risks. Case in point, we’ve spotted 2 warning signs for Jahez International Company for Information Systems Technology you should be aware of, and 1 of them can’t be ignored.
If P/E ratios interest you, 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.