Delta Galil Industries Ltd.'s (TLV:DELG) Business Is Trailing The Market But Its Shares Aren't

It's not a stretch to say that Delta Galil Industries Ltd.'s (TLV:DELG) price-to-earnings (or "P/E") ratio of 14.4x right now seems quite "middle-of-the-road" compared to the market in Israel, where the median P/E ratio is around 15x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

The recent earnings growth at Delta Galil Industries would have to be considered satisfactory if not spectacular. It might be that many expect the respectable earnings performance to only match most other companies over the coming period, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Delta Galil Industries

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

Is There Some Growth For Delta Galil Industries?

In order to justify its P/E ratio, Delta Galil Industries would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 3.8%. Still, lamentably EPS has fallen 22% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.1% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Delta Galil Industries' P/E sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

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.

Our examination of Delta Galil Industries revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Delta Galil Industries that you should be aware of.

If you're unsure about the strength of Delta Galil Industries' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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

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.