Market Participants Recognise Amanet Management & Systems Ltd.'s (TLV:AMAN) Earnings Pushing Shares 35% Higher

Amanet Management & Systems Ltd. (TLV:AMAN) shareholders have had their patience rewarded with a 35% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 65% in the last year.

After such a large jump in price, Amanet Management & Systems may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 22.9x, since almost half of all companies in Israel have P/E ratios under 15x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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For example, consider that Amanet Management & Systems' financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do 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.

Check out our latest analysis for Amanet Management & Systems

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

How Is Amanet Management & Systems' Growth Trending?

In order to justify its P/E ratio, Amanet Management & Systems would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 530% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 23% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Amanet Management & Systems is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

Amanet Management & Systems' P/E is getting right up there since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Amanet Management & Systems revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. 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.

Having said that, be aware Amanet Management & Systems is showing 3 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Amanet Management & Systems. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.