Mohammed Hadi Al-Rasheed Company (TADAWUL:9601) shareholders would be excited to see that the share price has had a great month, posting a 35% gain and recovering from prior weakness. The last month tops off a massive increase of 215% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Mohammed Hadi Al-Rasheed's price-to-earnings (or "P/E") ratio of 22x right now seems quite "middle-of-the-road" compared to the market in Saudi Arabia, where the median P/E ratio is around 22x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Mohammed Hadi Al-Rasheed certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Mohammed Hadi Al-Rasheed's earnings, revenue and cash flow.

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Mohammed Hadi Al-Rasheed's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 81% gain to the company's bottom line. Pleasingly, EPS has also lifted 228% in aggregate from three years ago, thanks to the last 12 months of growth. 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 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Mohammed Hadi Al-Rasheed's P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Mohammed Hadi Al-Rasheed's P/E

Mohammed Hadi Al-Rasheed appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 Mohammed Hadi Al-Rasheed currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

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.

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.