Sales speak for Advanced Petrochemical Company (TADAWUL:2330)

Considering that almost half of the chemical companies in Saudi Arabia have a price-to-sales ratio (or “P/S”) of less than 2x, Advanced petrochemical company (TADAWUL:2330) appears to be sending strong sell signals with its 4.6x P/S ratio. However, the P/S ratio might be quite high for a reason and further research is needed to determine if it is justified.

Check out our latest analysis for Advanced Petrochemical

How has Advanced Petrochemical developed recently?

Advanced Petrochemical has been struggling recently as its revenue has declined faster than most other companies. One possibility is that the P/S ratio is high because investors believe the company will completely turn things around and overtake most others in the industry. However, if it doesn’t, investors could be falling into a trap and overpaying for the stock.

Would you like to know how analysts see the future of Advanced Petrochemical compared to the industry? In this case free Report is a good starting point.

Is sufficient sales growth forecast for Advanced Petrochemical?

There is a fundamental assumption that a company must significantly outperform its industry for P/S ratios like Advanced Petrochemical’s to be considered reasonable.

Looking back, last year saw a frustrating 14% decline in sales. This means that the company has also experienced a long-term decline in sales, with sales falling by a total of 17% over the last three years. Accordingly, shareholders were disappointed with medium-term sales growth rates.

According to the seven analysts who cover the company, revenue is expected to grow 98% next year, well above the 7.4% growth forecast for the industry as a whole.

With this information, we can see why Advanced Petrochemical trades at such a high price-to-earnings ratio relative to the industry. It seems shareholders are not interested in offloading something that potentially has a better future ahead of it.

What does Advanced Petrochemical’s P/S mean for investors?

In general, we prefer to use the price-to-sales ratio only when we want to determine what the market thinks about the overall health of a company.

Our look at Advanced Petrochemical shows that the price-to-earnings ratio remains high due to strong future revenues. Currently, shareholders are comfortable with the price-to-earnings ratio as they are fairly confident that future revenues are not at risk. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 4 warning signs for Advanced Petrochemical (3 make us uncomfortable!) that we have uncovered.

Naturally, Profitable companies with a history of strong earnings growth are generally safer bets. You may want to see this free Collection of other companies that have reasonable P/E ratios and strong earnings growth.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.