In the financial market, it is not enough for a company to achieve good profits for its stock to rise. A company may be operationally successful, while investors see the price at which it was offered as high, or its future growth remains unclear, or trading on its stock is too weak to reflect its results fairly.
Lamsat provides a clear Saudi example of this paradox.
The company, which describes itself as the first specialized beauty company listed on the Saudi market, achieved growth in sales and profits in 2025, maintaining a high profit margin. However, its stock has fallen below the offering price by about a quarter.
This is not necessarily a story of a company whose business is declining.
It is, to a greater extent, a story of a market re-pricing what it expected from it.
From the Salon to the Trading Screen
Lamsat's listing is characterized by transferring a local service activity - women's salons and personal care - into the regulated environment of listed companies, which requires periodic disclosures, audited financial statements, governance, and accountability to shareholders.
The company offered six million shares at a price of 5.75 riyals per share, and its capital after the offering became 81 million riyals, distributed over 81 million shares. This means that its valuation at the time of the offering was about 465.75 million riyals.
The company also received total proceeds from the offering of 34.5 million riyals, which were publicly stated to be for developing existing assets and creating new ones.
The attached prospectus provides details on the business model, risks, expansion, and use of proceeds.
However, the investor in the offering was not just buying profits for one year. They were paying for expectations regarding the brand's ability to expand into new cities, standardize service quality, increase customer spending, and transform the branch network into a model that can be replicated on a larger scale.
Here begins the difference between the company's operational value and its stock price.
Good Results... But Reading Them Requires More Than Just Numbers
Lamsat's revenues in 2025 rose to 145.59 million riyals, compared to 136.04 million riyals in 2024.
Gross profit increased by 24.46% to 46.96 million riyals, while operating profit rose by 14.09% to 35.12 million riyals, and net profit increased by 7.28% to 33.70 million riyals.
The arrangement of these ratios reveals a story more important than just rising sales:
- Revenues increased by 7%.
- Gross profit increased by 24.5%.
- Operating profit increased by 14.1%.
- Net profit increased by 7.3%.
The gross profit margin - what remains from sales after deducting the direct cost of providing services - rose from about 27.7% to 32.3%. The operating margin also improved from 22.6% to 24.1%.
This is a clear operational improvement; the company generated more profit from every riyal of sales before financing, zakat, and other expenses.
As for the net profit margin, which is what ultimately remains for shareholders, it was about 23.15% compared to 23.09% in the previous year.
Therefore, it is more accurate to say that the company maintained a high and stable net margin, rather than achieving a significant increase in it.
Did Marketing Create This Growth?
The company attributed the revenue increase to expanding advertising methods and promotions within the branches, noting an increase related to these activities of about 85% compared to the previous year.
The result can be explained using an economic concept called operating leverage.
Operating leverage means that a company can increase its sales through existing assets, employees, and branches, without all costs rising at the same rate. If a branch is already open and paying its rent and salaries, attracting additional clients may increase revenues faster than costs rise.
However, to say that sales increased "without an increase in fixed expenses" would be overly assertive. The numbers show that some strong gains in gross profit were later consumed in operating, administrative, and other expenses.
It is more accurate to say:
Revenues grew faster than some direct costs, improving operational efficiency, but expenses did not remain entirely fixed.
This is an important distinction in financial analysis.
The success of a marketing campaign is not measured solely by the number of new clients, but by whether the profits from those clients exceed the cost of acquiring them.
Five Activities... And a Model That Wants to Become Simpler
The prospectus presented a model that includes women's grooming services, personal care, retail sale of beauty products, e-commerce, and photography and studio services.
The core activity of salons and care and products clearly represented the largest part of the company's business.
The decision to exit the studios can be understood as a practice of what is called capital allocation:
the management's choice of activities that deserve to be directed the company's money, time, and employees.
A small activity that does not generate an appropriate return does not become valuable simply because it adds a new line to the revenue list.
Closing it may be better than continuing to fund it; it reduces administrative complexity, frees up resources for the core activity, and clarifies the company's identity to investors.
However, this decision will ultimately be judged by two questions:
Will losses and expenses decrease after the closure?
Will the freed resources be reinvested in branches and services that generate higher returns?
As for e-commerce, it should not be considered a canceled activity before an explicit official disclosure appears.
The company may choose instead of cancellation to transform the digital channel from an independent store into a means for booking, marketing, and selling products related to services.
Why Did the Stock Drop Despite These Profits?
The offering price was 5.75 riyals, while the market snapshot showed a price of 4.20 riyals. With 81 million shares, the market value has shifted from about 465.75 million riyals at the offering to about 340.2 million riyals, a decline of nearly 27%.
When the market value declines, it does not mean that a similar amount has left the company's bank account.
The market value is the stock price multiplied by the number of shares; therefore, it reflects the price at which buyers and sellers are willing to transact, not the amount of cash the company has.
When measuring the current value against the net profits of 2025, the stock is trading at about ten times the earnings. This indicator is called price-to-earnings ratio:
the number of riyals an investor pays for each riyal of the company's annual profits.
In comparison, the offering valuation was about 13.8 times the earnings of 2025 itself. This means that profits increased, but the price the market is willing to pay for these profits decreased. This is called valuation multiple contraction.
The problem, then, is not necessarily with current profits.
It may be that investors are less willing to pay a high price for future growth expectations.
Limited Liquidity and a More Sensitive Price
The market snapshot shows only 13 trades according to trading data on Thursday, July 16, 2026, with a traded quantity of 2,680 shares, worth about 11.3 thousand riyals.
These are extremely limited trading figures compared to the company's total shares of 81 million shares.
This point helps to understand the nature of "growth". In illiquid markets - where the number of buyers and sellers and trading volume is low - a relatively small sell order can clearly move the price.
Therefore, the last trading price is not always a broad and accurate referendum on the true value of the company.
It may simply reflect a lack of a buyer at that moment or a limited shareholder's desire to sell.
However, weak liquidity is not an excuse that can be ignored; it is part of the stock's valuation. An investor typically asks for a lower price when they believe they may face difficulty selling their investment in the future.
What Should Be Monitored Next?
Increasing the number of branches alone will not be sufficient evidence of success.
What is more important is to know the performance of each branch individually. Investors will need to monitor five key questions:
Are the sales of existing branches increasing?
This is called same-store sales growth, which distinguishes real growth within branches from growth resulting only from opening new locations.
Is the average spending per client increasing?
Revenues may rise due to price increases or the addition of new services and products, not due to an increase in the number of clients.
What are the productivity levels of employees, chairs, and working hours?
Salon activity relies on human efficiencies; therefore, the quality, stability, and training of workers represent a financial element, not just an administrative issue.
How long does a new branch need to recover its costs?
This is known as the payback period. The shorter it is, the more capable the expansion is of creating value.
Do accounting profits convert into cash flows?
The company may report good profits, but the expansion of branches, inventory, and equipment consumes cash. Cash is what funds distributions and growth without the need for continuous borrowing or increasing capital.
A Good Company or a Good Stock?
Lamsat's results for 2025 appear good operationally. Revenues increased, gross profit grew faster, the operating margin improved, and the company maintained a net margin exceeding 23%.
But the market does not only ask: Is the company profitable?
It also asks: Are these margins sustainable? Can the branch experience be replicated in other cities? Can the company maintain service quality while expanding? Is there enough liquidity in the stock to allow for a more efficient price formation?
The lesson from Lamsat is that the company and the stock are not the same thing. The company may be successful, but its stock was offered at a price that reflects expectations higher than reality. The stock may decline while the business improves, as the market does not price the past alone; it continuously reassesses the future.
The more balanced judgment so far is that Lamsat does not present a story of operational collapse, but rather a story of an improving business and a market that is re-evaluating the price it is worth paying for it.
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