Accel Solutions Group Ltd (TLV:ACCL) Looks Just Right With A 25% Price Jump

Simply Wall St · 10/17 04:05

Despite an already strong run, Accel Solutions Group Ltd (TLV:ACCL) shares have been powering on, with a gain of 25% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 94% in the last year.

After such a large jump in price, Accel Solutions Group may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 23.1x, since almost half of all companies in Israel have P/E ratios under 11x and even P/E's lower than 7x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

As an illustration, earnings have deteriorated at Accel Solutions Group over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Accel Solutions Group

pe-multiple-vs-industry
TASE:ACCL Price to Earnings Ratio vs Industry October 17th 2024
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Accel Solutions Group will help you shine a light on its historical performance.

How Is Accel Solutions Group's Growth Trending?

In order to justify its P/E ratio, Accel Solutions Group would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 19%. Still, the latest three year period has seen an excellent 111% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 23% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Accel Solutions Group's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Accel Solutions Group's P/E

Shares in Accel Solutions Group have built up some good momentum lately, which has really inflated its P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Accel Solutions Group revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Accel Solutions Group that you need to be mindful of.

If you're unsure about the strength of Accel Solutions Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.