Natural Gas Distribution Company (TADAWUL:9516) Not Flying Under The Radar

With a price-to-earnings (or "P/E") ratio of 33x Natural Gas Distribution Company (TADAWUL:9516) may be sending very bearish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios under 17x and even P/E's lower than 12x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, Natural Gas Distribution has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Natural Gas Distribution

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Natural Gas Distribution will help you shine a light on its historical performance.

How Is Natural Gas Distribution's Growth Trending?

In order to justify its P/E ratio, Natural Gas Distribution would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. The latest three year period has also seen an excellent 105% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 12% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Natural Gas Distribution 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.

The Key Takeaway

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 Natural Gas Distribution 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.

Before you settle on your opinion, we've discovered 2 warning signs for Natural Gas Distribution (1 makes us a bit uncomfortable!) that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.