Saudi brokerage Riyad Capital has upgraded its view on Riyadh Cables Group, a leading manufacturer of cables and wires, even as the company's shares have tumbled about 19% since May. The firm maintained its 135-riyal price target, signaling it sees the recent selloff as an opportunity rather than a reason to flee.
The move comes after Riyadh Cables reported a 10% year-over-year increase in second-quarter net profit, reaching 307 million riyals (about $82 million). That figure was close to the broker's own estimate of 294 million riyals, suggesting the company's underlying performance is holding up better than the market's recent pessimism might imply.
What's behind the stock's slide?
The 19% drop since May reflects broader concerns about the company's near-term outlook. In its earnings release, management pointed to "tough times" stemming from raw-material shortages, supply chain disruptions, and logistical snags. These are familiar headaches for manufacturers globally, but they can hit companies like Riyadh Cables particularly hard because copper and other metals are key inputs and their prices have been volatile.
Despite those headwinds, Riyad Capital's note, cited by MT Newswires, suggests the quarter was "steady." The broker's decision to keep its price target unchanged—rather than cutting it—implies that the recent decline may have overshot the fundamentals. The target of 135 riyals represents a significant premium to the current trading level, though the exact upside depends on where the stock sits on any given day.
Why the broker turned more positive
Riyad Capital's shift to a more positive stance appears to be a judgment that the market has already priced in the worst of the supply-chain pain. The company's revenue, while not detailed in the brief, likely benefited from strong demand in Saudi Arabia's infrastructure and construction sectors, which have been booming as the government pushes ahead with massive projects under Vision 2030.
For investors, the key takeaway is that a well-regarded local broker sees the risk-reward as more favorable now than it did a few months ago. That doesn't mean the stock will rebound immediately—supply-chain issues could persist—but it does suggest that the downside may be limited from here.
What it means for everyday investors
If you own Riyadh Cables shares, this news is a mild positive. It signals that at least one professional analyst believes the recent drop was overdone and that the company's earnings power remains intact. However, it's important to remember that price targets are just one analyst's opinion, and they can be wrong.
For those considering buying, the 19% decline since May might look tempting, but it's worth weighing the risks. Raw-material costs and supply-chain disruptions are not fully resolved, and the company's management itself has flagged "tough times." A price target of 135 riyals implies upside, but it's not a guarantee.
Investors should also keep an eye on the broader market context. Saudi stocks have been volatile this year, influenced by oil prices and global interest-rate expectations. A company like Riyadh Cables, tied to domestic construction and industrial activity, could benefit if the kingdom's non-oil economy keeps growing, but it could also suffer if global demand weakens.
Looking ahead
The next major catalyst for Riyadh Cables will likely be its third-quarter results, due in the fall. Investors will be watching whether the company can maintain its profit growth despite the headwinds. If it does, the stock could recover; if not, the 135-riyal target may come under pressure.
For now, Riyad Capital's more positive stance adds a voice of optimism to a stock that has been beaten down. But as always, it's wise to do your own research and consider how this fits into your overall portfolio. No single analyst call should drive your investment decisions.
In related news, other companies in the region are also navigating supply-chain challenges. For instance, Nippon Steel returned to profit in its latest quarter, showing that some manufacturers are managing to weather the storm. And Vale's profit dropped 35% but the miner still boosted shareholder returns, a reminder that earnings and stock performance don't always move in lockstep.
Ultimately, Riyadh Cables' story is one of a solid company facing temporary headwinds. Whether the stock is a buy depends on your time horizon and risk tolerance. But with a major broker turning more positive, the market may be starting to see the glass as half full again.
