Unlocking Middle Eastern Undiscovered Gems: Why Derayah Financial and Saudi Azm Are Sector Leaders in 2025

As the Middle East transitions from an economy anchored in hydrocarbons to one fueled by technology, finance, and innovation, two companies—Derayah Financial (SASE:4084) and Saudi Azm (SASE:9534)—stand out as exemplars of sector-driven resilience. Both are positioned to capitalize on Saudi Arabia's Vision 2030 diversification strategy, offering investors exposure to undervalued opportunities in financial services and technology. With strong fundamentals, minimal debt, and growth trajectories outpacing regional peers, these stocks are poised to thrive amid geopolitical and energy market shifts.

Derayah Financial: Steadfast in a Volatile Landscape

Derayah Financial, a cornerstone of Saudi Arabia's financial sector, exemplifies stability. Its P/E ratio of 15.3x sits comfortably below the Saudi market average of 21.7x (), suggesting it's undervalued relative to its earnings potential. A debt-to-equity ratio of 0% underscores its pristine balance sheet, with no leverage obligations to jeopardize its financial health.

While its Q1 2025 net income dipped to SAR 106 million (down from SAR 214.3 million in 2024), the company's 17.6% five-year earnings growth and commitment to shareholder returns—via a guaranteed SAR 1.30 per share dividend for FY2025—make it a reliable bet. Revenue streams from brokerage, asset management, and investment services remain robust, diversifying its income and reducing reliance on cyclical sectors.

Saudi Azm: Growth at a Premium

Saudi Azm, a leader in communication and IT services, trades at a P/E ratio of 50.36, a figure that may initially appear elevated compared to the broader market. However, this premium is justified by its 21% annual earnings growth over five years (), outpacing Derayah's 17.6% growth. The company's strategic moves—such as partnering with the National Housing Company to develop digital platforms and securing government contracts—align with Saudi Arabia's push to digitize its economy.

Financially, Saudi Azm has transformed itself: its debt-to-equity ratio plummeted from 84% to just 2%, and it now holds more cash than total debt. Q1 2025 results showed a 47% year-on-year jump in net income to SAR 8.4 million, driven by expanded revenue streams in enterprise services and proprietary tech solutions. While its P/E reflects high growth expectations, its 22.4% nine-month revenue growth to SAR 189.1 million and rising shareholders' equity (up to SAR 128.06 million) reinforce its long-term viability.

Why These Sectors Matter Now

Both companies operate in sectors critical to Saudi Arabia's Vision 2030: financial services and technology. As the kingdom reduces its oil dependency, these industries are being prioritized for foreign investment and infrastructure spending. Derayah's stability in financial services and Saudi Azm's tech-driven expansion into digital brokerage and enterprise solutions position them as beneficiaries of this shift.

Risks and Considerations

• Volatility: Derayah's stock dropped 11.73% over one month, while Saudi Azm's higher P/E makes it sensitive to earnings misses.
• Earnings Volatility: Derayah's Q1 dip underscores the need to focus on its five-year track record rather than short-term noise.
• Geopolitical Exposure: Both companies are tied to Saudi Arabia's economic policies, which could face headwinds if global energy dynamics shift abruptly.

Investment Thesis: Act Before the Crowd

Investors seeking undervalued gems should consider:
- Derayah Financial for dividend stability and low risk, ideal for income-focused portfolios.
- Saudi Azm for high-growth exposure, suited to investors willing to tolerate volatility for capital appreciation.

Both stocks trade at valuations that do not yet reflect their full potential. As Saudi Arabia's diversification efforts gain traction and global investors turn their gaze eastward, these companies are likely to attract broader recognition—and higher valuations.

Conclusion

The Middle East's shift from oil to innovation is creating rare opportunities in sectors like finance and tech. Derayah Financial and Saudi Azm exemplify the region's resilience, offering strong fundamentals and growth aligned with Vision 2030. While risks exist, the rewards of early entry into these undervalued stocks are compelling. For investors who act now, these gems could become the bedrock of their portfolios before the broader market catches on.

The clock is ticking—position yourself before these undiscovered gems shine brightly.