Electrical Industries Company (TADAWUL:1303) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 98%.

Since its price has surged higher, Electrical Industries may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 29.5x, since 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.

With earnings growth that's superior to most other companies of late, Electrical Industries has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Electrical Industries' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Electrical Industries?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Electrical Industries' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 47%. The strong recent performance means it was also able to grow EPS by 573% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 26% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 11% growth forecast for the broader market.

In light of this, it's understandable that Electrical Industries' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Electrical Industries' P/E

Electrical Industries' P/E is flying high just like its stock has during the last month. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Electrical Industries 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.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Electrical Industries with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.