The Market Lifts Averbuch Formica Center Ltd. (TLV:AVER) Shares 28% But It Can Do More

The Averbuch Formica Center Ltd. (TLV:AVER) share price has done very well over the last month, posting an excellent gain of 28%. The annual gain comes to 113% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, it's still not a stretch to say that Averbuch Formica Center's price-to-earnings (or "P/E") ratio of 12.8x right now seems quite "middle-of-the-road" compared to the market in Israel, where the median P/E ratio is around 12x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been quite advantageous for Averbuch Formica Center as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Averbuch Formica Center

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Averbuch Formica Center will help you shine a light on its historical performance.

How Is Averbuch Formica Center's Growth Trending?

Averbuch Formica Center's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 253% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 746% 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 12% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Averbuch Formica Center is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Averbuch Formica Center's P/E?

Its shares have lifted substantially and now Averbuch Formica Center's P/E is also back up to the market median. 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 Averbuch Formica Center currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Averbuch Formica Center, and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Averbuch Formica Center. 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.

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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.