There's No Escaping Polyram Plastic Industries LTD's (TLV:POLP) Muted Earnings

With a price-to-earnings (or "P/E") ratio of 12x Polyram Plastic Industries LTD (TLV:POLP) may be sending bullish signals at the moment, given that almost half of all companies in Israel have P/E ratios greater than 15x and even P/E's higher than 22x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

The earnings growth achieved at Polyram Plastic Industries over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable 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.

Check out our latest analysis for Polyram Plastic Industries

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

How Is Polyram Plastic Industries' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Polyram Plastic Industries' 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 19% last year. Still, incredibly EPS has fallen 9.7% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's an unpleasant look.

In light of this, it's understandable that Polyram Plastic Industries' P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

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 Polyram Plastic Industries maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. 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 moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Polyram Plastic Industries you should be aware of.

Of course, you might also be able to find a better stock than Polyram Plastic Industries. 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.