Kafrit Industries (1993) Ltd's (TLV:KAFR) Price Is Right But Growth Is Lacking After Shares Rocket 26%

Kafrit Industries (1993) Ltd (TLV:KAFR) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last month tops off a massive increase of 114% in the last year.

Although its price has surged higher, Kafrit Industries (1993)'s price-to-earnings (or "P/E") ratio of 11.4x might still make it look like a buy right now compared to the market in Israel, where around half of the companies have P/E ratios above 15x and even P/E's above 24x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Kafrit Industries (1993) as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

See our latest analysis for Kafrit Industries (1993)

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Kafrit Industries (1993) will help you shine a light on its historical performance.

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

The only time you'd be truly comfortable seeing a P/E as low as Kafrit Industries (1993)'s is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 86% last year. As a result, it also grew EPS by 14% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Kafrit Industries (1993)'s P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Kafrit Industries (1993)'s P/E?

The latest share price surge wasn't enough to lift Kafrit Industries (1993)'s P/E close to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Kafrit Industries (1993) maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Kafrit Industries (1993) you should be aware of.

Of course, you might also be able to find a better stock than Kafrit Industries (1993). So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.