Shagrir Group Vehicle Services Ltd's (TLV:SHGR) 26% Jump Shows Its Popularity With Investors

Explore Shagrir Group Vehicle Services's Fair Values from the Community and select yours

Shagrir Group Vehicle Services Ltd (TLV:SHGR) shareholders have had their patience rewarded with a 26% share price jump in the last month. The annual gain comes to 146% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Shagrir Group Vehicle Services may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.3x, 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 instance, Shagrir Group Vehicle Services' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Shagrir Group Vehicle Services

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 Shagrir Group Vehicle Services' earnings, revenue and cash flow.

Does Growth Match The High P/E?

Shagrir Group Vehicle Services' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered a frustrating 10% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 103% 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.

This is in contrast to the rest of the market, which is expected to grow by 21% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Shagrir Group Vehicle Services 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.

The Bottom Line On Shagrir Group Vehicle Services' P/E

Shagrir Group Vehicle Services' P/E is getting right up there since its shares have risen strongly. 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.

We've established that Shagrir Group Vehicle Services 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 always need to take note of risks, for example - Shagrir Group Vehicle Services has 3 warning signs we think you should be aware of.

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.