Stock Analysis

Even With A 31% Surge Cautious Investors Are Not Rewarding E. Schnapp & Co. Works Ltd's (TLV:SHNP) Performance Completely

TASE:SHNP
Source: Shutterstock

E. Schnapp & Co. Works Ltd (TLV:SHNP) shareholders have had their patience rewarded with a 31% share price jump in the last month. The last month tops off a massive increase of 120% in the last year.

Although its price has surged higher, E. Schnapp Works' price-to-earnings (or "P/E") ratio of 9x might still make it look like a buy right now compared to the market in Israel, where around half of the companies have P/E ratios above 16x and even P/E's above 24x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

E. Schnapp Works certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

Check out our latest analysis for E. Schnapp Works

pe
TASE:SHNP Price Based on Past Earnings November 27th 2021
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on E. Schnapp Works' earnings, revenue and cash flow.

Is There Any Growth For E. Schnapp Works?

E. Schnapp Works' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 114% last year. The strong recent performance means it was also able to grow EPS by 92% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 18% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that E. Schnapp Works is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Despite E. Schnapp Works' shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that E. Schnapp Works currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 3 warning signs for E. Schnapp Works (1 is a bit concerning!) that we have uncovered.

Of course, you might also be able to find a better stock than E. Schnapp Works. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

Valuation is complex, but we're helping make it simple.

Find out whether E. Schnapp Works is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.