Peninsula Group Ltd's (TLV:PEN) Shares Bounce 25% But Its Business Still Trails The Market

The Peninsula Group Ltd (TLV:PEN) share price has done very well over the last month, posting an excellent gain of 25%. The last 30 days bring the annual gain to a very sharp 79%.

Although its price has surged higher, given about half the companies in Israel have price-to-earnings ratios (or "P/E's") above 15x, you may still consider Peninsula Group as an attractive investment with its 12.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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For instance, Peninsula Group's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Peninsula Group

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

How Is Peninsula Group's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Peninsula Group's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.1%. As a result, earnings from three years ago have also fallen 21% overall. 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 10% shows it's an unpleasant look.

With this information, we are not surprised that Peninsula Group is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

What We Can Learn From Peninsula Group's P/E?

Peninsula Group's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

As we suspected, our examination of Peninsula Group revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Peninsula Group, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Peninsula 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.