Meshulam Levinstein Contracting & Engineering Ltd.'s (TLV:LEVI) Shares Bounce 25% But Its Business Still Trails The Market

Meshulam Levinstein Contracting & Engineering Ltd. (TLV:LEVI) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 6.3% isn't as impressive.

Even after such a large jump in price, given about half the companies in Israel have price-to-earnings ratios (or "P/E's") above 12x, you may still consider Meshulam Levinstein Contracting & Engineering as an attractive investment with its 7.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For example, consider that Meshulam Levinstein Contracting & Engineering's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for Meshulam Levinstein Contracting & Engineering

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 Meshulam Levinstein Contracting & Engineering's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Meshulam Levinstein Contracting & Engineering's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 43% decrease to the company's bottom line. Even so, admirably EPS has lifted 66% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 22% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Meshulam Levinstein Contracting & Engineering is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Meshulam Levinstein Contracting & Engineering's P/E?

Meshulam Levinstein Contracting & Engineering's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Meshulam Levinstein Contracting & Engineering maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Meshulam Levinstein Contracting & Engineering (1 makes us a bit uncomfortable!) that you need to take into consideration.

If you're unsure about the strength of Meshulam Levinstein Contracting & Engineering'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.