Some Shareholders Feeling Restless Over Electra Consumer Products (1970) Ltd's (TLV:ECP) P/E Ratio

With a price-to-earnings (or "P/E") ratio of 17.8x Electra Consumer Products (1970) Ltd (TLV:ECP) may be sending bearish signals at the moment, given that almost half of all companies in Israel have P/E ratios under 15x and even P/E's lower than 10x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, Electra Consumer Products (1970) has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Electra Consumer Products (1970)

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 Electra Consumer Products (1970)'s earnings, revenue and cash flow.

Is There Enough Growth For Electra Consumer Products (1970)?

In order to justify its P/E ratio, Electra Consumer Products (1970) would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 224% gain to the company's bottom line. As a result, it also grew EPS by 6.2% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 22% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's alarming that Electra Consumer Products (1970)'s P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates 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 recent growth rates.

The Bottom Line On Electra Consumer Products (1970)'s P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Electra Consumer Products (1970) currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 3 warning signs for Electra Consumer Products (1970) you should be aware of, and 2 of them don't sit too well with us.

You might be able to find a better investment than Electra Consumer Products (1970). If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.