Investors Appear Satisfied With Aura Investments Ltd.'s (TLV:AURA) Prospects As Shares Rocket 31%

Aura Investments Ltd. (TLV:AURA) shareholders have had their patience rewarded with a 31% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 98% in the last year.

Since its price has surged higher, Aura Investments may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.3x, since almost half of all companies in Israel have P/E ratios under 15x and even P/E's lower than 10x 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 as high as it is.

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Aura Investments certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

Check out 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.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Aura Investments' is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 89%. The strong recent performance means it was also able to grow EPS by 104% 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.

Comparing that to the market, which is only predicted to deliver 9.1% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

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 Bottom Line On Aura Investments' P/E

Aura Investments' P/E is getting right up there since its shares have risen strongly. 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.

As we suspected, our examination of Aura Investments revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Aura Investments (including 2 which shouldn't be ignored).

If you're unsure about the strength of Aura Investments' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.