Fewer Investors Than Expected Jumping On BIG Shopping Centers Ltd (TLV:BIG)

When close to half the companies in Israel have price-to-earnings ratios (or "P/E's") above 17x, you may consider BIG Shopping Centers Ltd (TLV:BIG) as an attractive investment with its 9.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, BIG Shopping Centers has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for BIG Shopping Centers

Although there are no analyst estimates available for BIG Shopping Centers, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For BIG Shopping Centers?

There's an inherent assumption that a company should underperform the market for P/E ratios like BIG Shopping Centers' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 101% last year. As a result, it also grew EPS by 28% 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 9.8% shows it's about the same on an annualised basis.

With this information, we find it odd that BIG Shopping Centers is trading at a P/E lower than the market. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

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.

Our examination of BIG Shopping Centers revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

You need to take note of risks, for example - BIG Shopping Centers has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If these risks are making you reconsider your opinion on BIG Shopping Centers, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.