Optimistic Investors Push Navitas Petroleum, Limited Partnership (TLV:NVPT) Shares Up 29% But Growth Is Lacking

Navitas Petroleum, Limited Partnership (TLV:NVPT) shares have continued their recent momentum with a 29% gain in the last month alone. The annual gain comes to 164% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Navitas Petroleum Limited Partnership's price-to-earnings (or "P/E") ratio of 36.1x might make it look like a strong sell right now compared to the market in Israel, where around half of the companies have P/E ratios below 12x and even P/E's below 8x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

For example, consider that Navitas Petroleum Limited Partnership's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Navitas Petroleum Limited Partnership

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

How Is Navitas Petroleum Limited Partnership's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Navitas Petroleum Limited Partnership's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.

In light of this, it's alarming that Navitas Petroleum Limited Partnership'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. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Final Word

The strong share price surge has got Navitas Petroleum Limited Partnership's P/E rushing to great heights as well. 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 Navitas Petroleum Limited Partnership revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. 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. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 2 warning signs for Navitas Petroleum Limited Partnership that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.