Ashot Ashkelon Industries Ltd. (TLV:ASHO) Looks Just Right With A 27% Price Jump

Ashot Ashkelon Industries Ltd. (TLV:ASHO) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 130% in the last year.

After such a large jump in price, Ashot Ashkelon Industries' price-to-earnings (or "P/E") ratio of 49.6x might make it look like a strong sell right now compared to the market in Israel, where around half of the companies have P/E ratios below 11x and even P/E's below 7x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Ashot Ashkelon Industries certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Ashot Ashkelon Industries

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 Ashot Ashkelon Industries' earnings, revenue and cash flow.

How Is Ashot Ashkelon Industries' Growth Trending?

Ashot Ashkelon Industries' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 82%. The latest three year period has also seen an excellent 500% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 19% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Ashot Ashkelon Industries is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Ashot Ashkelon Industries' P/E?

Shares in Ashot Ashkelon Industries have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Ashot Ashkelon Industries 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. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Ashot Ashkelon Industries.

Of course, you might also be able to find a better stock than Ashot Ashkelon Industries. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.