Libra Insurance Company Ltd's (TLV:LBRA) Shares Leap 38% Yet They're Still Not Telling The Full Story

Libra Insurance Company Ltd (TLV:LBRA) shareholders would be excited to see that the share price has had a great month, posting a 38% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 11% is also fairly reasonable.

Although its price has surged higher, it's still not a stretch to say that Libra Insurance's price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" compared to the Insurance industry in Israel, where the median P/S ratio is around 0.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Libra Insurance

What Does Libra Insurance's Recent Performance Look Like?

Recent times have been quite advantageous for Libra Insurance as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. 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.

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 Libra Insurance's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Libra Insurance?

The only time you'd be comfortable seeing a P/S like Libra Insurance's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 64%. The strong recent performance means it was also able to grow revenue by 281% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 14% shows it's a great look while it lasts.

With this in mind, we find it intriguing that Libra Insurance's P/S matches its industry peers. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Libra Insurance's P/S Mean For Investors?

Libra Insurance appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Libra Insurance revealed its growing revenue over the medium-term hasn't helped elevate its P/S above that of the industry, which is surprising given the industry is set to shrink. When we see a history of positive growth in a struggling industry, but only an average P/S, we assume potential risks are what might be placing pressure on the P/S ratio. Without the guidance of analysts, perhaps shareholders are feeling uncertain over whether the revenue performance can continue amidst a declining industry outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Libra Insurance you should be aware of, and 1 of them is a bit concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.