Aura Investments Ltd.'s (TLV:AURA) Price In Tune With Earnings

With a price-to-earnings (or "P/E") ratio of 18.9x Aura Investments Ltd. (TLV:AURA) may be sending bearish signals at the moment, given that almost half of all companies in Israel have P/E ratios under 13x and even P/E's lower than 8x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Aura Investments as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Aura Investments

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 Aura Investments' earnings, revenue and cash flow.

Is There Enough Growth For Aura Investments?

Aura Investments' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 143% last year. The strong recent performance means it was also able to grow EPS by 274% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 29% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that Aura Investments' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

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.

We've established that Aura Investments maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - Aura Investments has 4 warning signs (and 2 which are concerning) we think you should know about.

You might be able to find a better investment than Aura Investments. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.