A Piece Of The Puzzle Missing From Rotem Shani Entrepreneurship and Investment Ltd.'s (TLV:RTSN) 26% Share Price Climb

Despite an already strong run, Rotem Shani Entrepreneurship and Investment Ltd. (TLV:RTSN) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 141% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Rotem Shani Entrepreneurship and Investment's price-to-earnings (or "P/E") ratio of 5.9x might still make it look like a strong buy right now compared to the market in Israel, where around half of the companies have P/E ratios above 15x and even P/E's above 24x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been quite advantageous for Rotem Shani Entrepreneurship and Investment as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Rotem Shani Entrepreneurship and Investment

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

How Is Rotem Shani Entrepreneurship and Investment's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Rotem Shani Entrepreneurship and Investment's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 140% last year. Pleasingly, EPS has also lifted 173% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 26% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Rotem Shani Entrepreneurship and Investment's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Rotem Shani Entrepreneurship and Investment's recent share price jump still sees its P/E sitting firmly flat on the ground. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Rotem Shani Entrepreneurship and Investment revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It is also worth noting that we have found 3 warning signs for Rotem Shani Entrepreneurship and Investment (2 are a bit unpleasant!) that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.