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Wall Street JournalImproved Earnings Required Before Lahav LR Real Estate Ltd (TLV:LAHAV) Stock's 26% Jump Looks Justified
Lahav LR Real Estate Ltd (TLV:LAHAV) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 63%.
Although its price has surged higher, given about half the companies in Israel have price-to-earnings ratios (or "P/E's") above 17x, you may still consider Lahav LR Real Estate as an attractive investment with its 10.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
With earnings growth that's exceedingly strong of late, Lahav LR Real Estate has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
See our latest analysis for Lahav LR Real Estate
Is There Any Growth For Lahav LR Real Estate?
The only time you'd be truly comfortable seeing a P/E as low as Lahav LR Real Estate's is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 76% last year. The latest three year period has also seen a 16% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
This is in contrast to the rest of the market, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's understandable that Lahav LR Real Estate's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Key Takeaway
Lahav LR Real Estate's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of Lahav LR Real Estate revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Lahav LR Real Estate (1 makes us a bit uncomfortable) you should be aware of.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.