Tamar Petroleum Ltd's (TLV:TMRP) 28% Share Price Surge Not Quite Adding Up

Tamar Petroleum Ltd (TLV:TMRP) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 170% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Tamar Petroleum's price-to-earnings (or "P/E") ratio of 11.8x is worth a mention when the median P/E in Israel is similar at about 13x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Earnings have risen firmly for Tamar Petroleum recently, which is pleasing to see. One possibility is that the P/E is moderate because investors think this respectable earnings growth might not be enough to outperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Tamar Petroleum

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Tamar Petroleum's earnings, revenue and cash flow.

How Is Tamar Petroleum's Growth Trending?

Tamar Petroleum's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 26% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 44% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 14% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Tamar Petroleum'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 Key Takeaway

Tamar Petroleum appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Tamar Petroleum currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Having said that, be aware Tamar Petroleum is showing 4 warning signs in our investment analysis, and 2 of those are a bit unpleasant.

You might be able to find a better investment than Tamar Petroleum. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.