Further Upside For IMCO Industries Ltd. (TLV:IMCO) Shares Could Introduce Price Risks After 27% Bounce

IMCO Industries Ltd. (TLV:IMCO) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The last month tops off a massive increase of 213% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about IMCO Industries' P/E ratio of 17.1x, since the median price-to-earnings (or "P/E") ratio in Israel is also close to 16x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Recent times have been quite advantageous for IMCO Industries 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 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 not quite in favour.

Check out our latest analysis for IMCO Industries

Although there are no analyst estimates available for IMCO Industries, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is IMCO Industries' Growth Trending?

The only time you'd be comfortable seeing a P/E like IMCO Industries' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 81% last year. The strong recent performance means it was also able to grow EPS by 1,548% 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 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that IMCO Industries' P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

IMCO Industries' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

Our examination of IMCO Industries revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for IMCO Industries (3 shouldn't be ignored) you should be aware of.

If these risks are making you reconsider your opinion on IMCO Industries, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.