El-Mor Electric Installation & Services (1986) Ltd.'s (TLV:ELMR) Shares Climb 29% But Its Business Is Yet to Catch Up

The El-Mor Electric Installation & Services (1986) Ltd. (TLV:ELMR) share price has done very well over the last month, posting an excellent gain of 29%. The last 30 days bring the annual gain to a very sharp 37%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about El-Mor Electric Installation & Services (1986)'s P/E ratio of 12.3x, since the median price-to-earnings (or "P/E") ratio in Israel is also close to 13x. 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.

For example, consider that El-Mor Electric Installation & Services (1986)'s financial performance has been pretty ordinary lately as earnings growth is non-existent. It might be that many expect the uninspiring earnings performance to only match most other companies at best over the coming period, which has kept the P/E from rising. If not, then existing shareholders may be feeling hopeful about the future direction of the share price.

Check out our latest analysis for El-Mor Electric Installation & Services (1986)

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 El-Mor Electric Installation & Services (1986)'s earnings, revenue and cash flow.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like El-Mor Electric Installation & Services (1986)'s is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Still, the latest three year period was better as it's delivered a decent 18% overall rise in EPS. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 33% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's curious that El-Mor Electric Installation & Services (1986)'s P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Final Word

El-Mor Electric Installation & Services (1986)'s stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that El-Mor Electric Installation & Services (1986) currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 2 warning signs for El-Mor Electric Installation & Services (1986) that you need to take into consideration.

If you're unsure about the strength of El-Mor Electric Installation & Services (1986)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.