Stock Analysis

Veridis Environment Ltd (TLV:VRDS) Looks Just Right

TASE:VRDS
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With a price-to-earnings (or "P/E") ratio of 23.2x Veridis Environment Ltd (TLV:VRDS) may be sending very bearish signals at the moment, given that almost half of all companies in Israel have P/E ratios under 14x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For example, consider that Veridis Environment's financial performance has been poor lately as it's 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.

See our latest analysis for Veridis Environment

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TASE:VRDS Price Based on Past Earnings February 25th 2022
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Veridis Environment will help you shine a light on its historical performance.

Is There Enough Growth For Veridis Environment?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Veridis Environment's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 20% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 2,730% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 2.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Veridis Environment 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 Veridis Environment's P/E?

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.

We've established that Veridis Environment 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Veridis Environment that you should be aware of.

If these risks are making you reconsider your opinion on Veridis Environment, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're helping make it simple.

Find out whether Veridis Environment is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.