Optimistic Investors Push Hamama Meir Trading (1996) Ltd. (TLV:HMAM) Shares Up 37% But Growth Is Lacking

Hamama Meir Trading (1996) Ltd. (TLV:HMAM) shares have had a really impressive month, gaining 37% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 7.4% isn't as impressive.

Even after such a large jump in price, it's still not a stretch to say that Hamama Meir Trading (1996)'s price-to-earnings (or "P/E") ratio of 15.6x right now seems quite "middle-of-the-road" compared to the market in Israel, where the median P/E ratio is around 16x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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With earnings growth that's exceedingly strong of late, Hamama Meir Trading (1996) has been doing very well. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Hamama Meir Trading (1996)

Although there are no analyst estimates available for Hamama Meir Trading (1996), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The P/E?

The only time you'd be comfortable seeing a P/E like Hamama Meir Trading (1996)'s is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 44% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 72% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 9.8% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's somewhat alarming that Hamama Meir Trading (1996)'s P/E sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. 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 Bottom Line On Hamama Meir Trading (1996)'s P/E

Hamama Meir Trading (1996)'s stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

Our examination of Hamama Meir Trading (1996) 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. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for Hamama Meir Trading (1996) that you need to take into consideration.

If these risks are making you reconsider your opinion on Hamama Meir Trading (1996), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.