Kafrit Industries (1993) Ltd's (TLV:KAFR) Shares Bounce 26% But Its Business Still Trails The Market

Kafrit Industries (1993) Ltd (TLV:KAFR) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 48%.

Even after such a large jump in price, Kafrit Industries (1993)'s price-to-earnings (or "P/E") ratio of 9x 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 12x and even P/E's above 20x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's exceedingly strong of late, Kafrit Industries (1993) has been doing very well. 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?

Kafrit Industries (1993)'s P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 124% gain to the company's bottom line. As a result, it also grew EPS by 21% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 13% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Kafrit Industries (1993)'s P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Kafrit Industries (1993)'s stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Kafrit Industries (1993) revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Kafrit Industries (1993) is showing 2 warning signs in our investment analysis, you should know about.

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.