Even With A 25% Surge, Cautious Investors Are Not Rewarding Nawi Group Ltd's (TLV:NAWI) Performance Completely

Nawi Group Ltd (TLV:NAWI) shareholders have had their patience rewarded with a 25% share price jump in the last month. The annual gain comes to 121% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Nawi Group's price-to-earnings (or "P/E") ratio of 12.1x might still make it look like a 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 23x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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The earnings growth achieved at Nawi Group over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for Nawi Group

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

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

In order to justify its P/E ratio, Nawi Group would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a decent 9.9% gain to the company's bottom line. Pleasingly, EPS has also lifted 42% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 10% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Nawi Group'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

The latest share price surge wasn't enough to lift Nawi Group's P/E close to the market median. 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.

Our examination of Nawi Group 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.

Before you settle on your opinion, we've discovered 2 warning signs for Nawi Group (1 shouldn't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on Nawi Group, 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.