There's No Escaping Etihad Atheeb Telecommunication Company's (TADAWUL:7040) Muted Earnings Despite A 27% Share Price Rise

Simply Wall St · 10/15 03:00

Etihad Atheeb Telecommunication Company (TADAWUL:7040) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

Even after such a large jump in price, given about half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") above 26x, you may still consider Etihad Atheeb Telecommunication as an attractive investment with its 19.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

As an illustration, earnings have deteriorated at Etihad Atheeb Telecommunication over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Etihad Atheeb Telecommunication

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SASE:7040 Price to Earnings Ratio vs Industry October 15th 2024
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Etihad Atheeb Telecommunication will help you shine a light on its historical performance.

Is There Any Growth For Etihad Atheeb Telecommunication?

The only time you'd be truly comfortable seeing a P/E as low as Etihad Atheeb Telecommunication's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 52% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Etihad Atheeb Telecommunication is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

The latest share price surge wasn't enough to lift Etihad Atheeb Telecommunication's P/E close to the market median. 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.

As we suspected, our examination of Etihad Atheeb Telecommunication revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Etihad Atheeb Telecommunication (2 don't sit too well with us) you should be aware of.

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.