Market Might Still Lack Some Conviction On IMCO Industries Ltd. (TLV:IMCO) Even After 36% Share Price Boost

Despite an already strong run, IMCO Industries Ltd. (TLV:IMCO) shares have been powering on, with a gain of 36% in the last thirty days. The last 30 days bring the annual gain to a very sharp 98%.

In spite of the firm bounce in price, IMCO Industries may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.7x, since almost half of all companies in Israel have P/E ratios greater than 14x and even P/E's higher than 22x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

IMCO Industries 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.

See our latest analysis for IMCO 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 IMCO Industries' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, IMCO Industries would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 81% gain to the company's bottom line. 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 30% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that IMCO Industries 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 Bottom Line On IMCO Industries' P/E

The latest share price surge wasn't enough to lift IMCO Industries' P/E close 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 IMCO Industries currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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.

Having said that, be aware IMCO Industries is showing 4 warning signs in our investment analysis, and 2 of those make us uncomfortable.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.