Endymed Ltd's (TLV:ENDY) Share Price Not Quite Adding Up

When close to half the companies in Israel have price-to-earnings ratios (or "P/E's") below 12x, you may consider Endymed Ltd (TLV:ENDY) as a stock to potentially avoid with its 17.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

For example, consider that Endymed'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. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Endymed

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

How Is Endymed's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Endymed's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a frustrating 75% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 33% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 19% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Endymed is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate 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 Bottom Line On Endymed's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Endymed currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Endymed (at least 1 which is significant), and understanding these should be part of your investment process.

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