Stock Analysis

Subdued Growth No Barrier To Ratio Oil Explorations (1992) – Limited Partnership's (TLV:RATI) Price

TASE:RATI
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When close to half the companies in Israel have price-to-earnings ratios (or "P/E's") below 15x, you may consider Ratio Oil Explorations (1992) – Limited Partnership (TLV:RATI) as a stock to potentially avoid with its 18.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Ratio Oil Explorations (1992) – Limited Partnership certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Ratio Oil Explorations (1992) – Limited Partnership

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TASE:RATI Price Based on Past Earnings February 21st 2022
Although there are no analyst estimates available for Ratio Oil Explorations (1992) – 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 Ratio Oil Explorations (1992) – Limited Partnership's Growth Trending?

In order to justify its P/E ratio, Ratio Oil Explorations (1992) – Limited Partnership would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 72% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 2.9% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Ratio Oil Explorations (1992) – Limited Partnership's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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 recent growth rates.

What We Can Learn From Ratio Oil Explorations (1992) – Limited Partnership's P/E?

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 Ratio Oil Explorations (1992) – 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.

It is also worth noting that we have found 3 warning signs for Ratio Oil Explorations (1992) – Limited Partnership (1 is significant!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Ratio Oil Explorations (1992) – Limited Partnership, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're helping make it simple.

Find out whether Ratio Energies - Limited Partnership is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.