Market Participants Recognise Libra Insurance Company Ltd's (TLV:LBRA) Revenues Pushing Shares 26% Higher

Simply Wall St · 10/16 04:12

Libra Insurance Company Ltd (TLV:LBRA) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 171% following the latest surge, making investors sit up and take notice.

After such a large jump in price, you could be forgiven for thinking Libra Insurance is a stock not worth researching with a price-to-sales ratios (or "P/S") of 0.9x, considering almost half the companies in Israel's Insurance industry have P/S ratios below 0.3x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Libra Insurance

ps-multiple-vs-industry
TASE:LBRA Price to Sales Ratio vs Industry October 16th 2024

How Libra Insurance Has Been Performing

Recent times have been quite advantageous for Libra Insurance as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Libra Insurance, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Libra Insurance?

In order to justify its P/S ratio, Libra Insurance would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 82%. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Comparing that to the industry, which is predicted to shrink 7.3% in the next 12 months, the company's positive momentum based on recent medium-term revenue results is a bright spot for the moment.

With this in mind, it's clear to us why Libra Insurance's P/S exceeds that of its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the industry. Nonetheless, with most other businesses facing an uphill battle, staying on its current revenue path is no certainty.

The Final Word

Libra Insurance's P/S is on the rise since its shares have risen strongly. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As detailed previously, the strength of Libra Insurance's recent revenue trends over the medium-term relative to a declining industry is part of the reason why it trades at a higher P/S than its industry counterparts. It could be said that investors feel this revenue growth will continue into the future, justifying a higher P/S ratio. We still remain cautious about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. If things remain consistent though, shareholders shouldn't expect any major share price shocks in the near term.

Plus, you should also learn about this 1 warning sign we've spotted with Libra Insurance.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.