Take Care Before Jumping Onto Albaad Massuot Yitzhak Ltd (TLV:ALBA) Even Though It's 25% Cheaper

To the annoyance of some shareholders, Albaad Massuot Yitzhak Ltd (TLV:ALBA) shares are down a considerable 25% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 54% share price decline.

After such a large drop in price, given close to half the companies in Israel have price-to-earnings ratios (or "P/E's") above 16x, you may consider Albaad Massuot Yitzhak as a highly attractive investment with its 3.4x 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 so limited.

Recent times have been quite advantageous for Albaad Massuot Yitzhak as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform 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 out of favour.

View our latest analysis for Albaad Massuot Yitzhak

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Albaad Massuot Yitzhak will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The Low P/E?

Albaad Massuot Yitzhak's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 174%. Pleasingly, EPS has also lifted 371% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 18% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Albaad Massuot Yitzhak is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Having almost fallen off a cliff, Albaad Massuot Yitzhak's share price has pulled its P/E way down as well. 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 Albaad Massuot Yitzhak currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Albaad Massuot Yitzhak (1 is a bit concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Albaad Massuot Yitzhak, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.

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