Investors Appear Satisfied With Azorim-Investment, Development & Construction Co. Ltd's (TLV:AZRM) Prospects

With a price-to-earnings (or "P/E") ratio of 20.7x Azorim-Investment, Development & Construction Co. Ltd (TLV:AZRM) may be sending very bearish signals at the moment, given that almost half of all companies in Israel have P/E ratios under 11x and even P/E's lower than 8x 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.

The recent earnings growth at Azorim-Investment Development & Construction would have to be considered satisfactory if not spectacular. One possibility is that the P/E is high because investors think this good 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 Azorim-Investment Development & Construction

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

Is There Enough Growth For Azorim-Investment Development & Construction?

In order to justify its P/E ratio, Azorim-Investment Development & Construction would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a decent 2.8% gain to the company's bottom line. The latest three year period has also seen an excellent 59% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 13% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Azorim-Investment Development & Construction 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.

What We Can Learn From Azorim-Investment Development & Construction's P/E?

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.

As we suspected, our examination of Azorim-Investment Development & Construction revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Azorim-Investment Development & Construction (1 is a bit unpleasant!) that you should be aware of.

Of course, you might also be able to find a better stock than Azorim-Investment Development & Construction. 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.