Earnings Tell The Story For Shikun & Binui Ltd. (TLV:SKBN) As Its Stock Soars 27%

Shikun & Binui Ltd. (TLV:SKBN) shares have had a really impressive month, gaining 27% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.0% in the last twelve months.

Following the firm bounce in price, Shikun & Binui may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 28.4x, since almost half of all companies in Israel have P/E ratios under 11x and even P/E's lower than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been quite advantageous for Shikun & Binui as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Shikun & Binui

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

Is There Enough Growth For Shikun & Binui?

In order to justify its P/E ratio, Shikun & Binui would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 81% gain to the company's bottom line. The latest three year period has also seen an excellent 169% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 22% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Shikun & Binui is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From Shikun & Binui's P/E?

The strong share price surge has got Shikun & Binui's P/E rushing to great heights as well. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Shikun & Binui maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 5 warning signs for Shikun & Binui you should be aware of, and 2 of them are significant.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com