Benign Growth For Blue Square Real Estate Ltd (TLV:BLSR) Underpins Its Share Price

Blue Square Real Estate Ltd's (TLV:BLSR) price-to-earnings (or "P/E") ratio of 5.9x might make it look like a strong buy right now compared to the market in Israel, where around half of the companies have P/E ratios above 15x and even P/E's above 24x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Blue Square Real Estate certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

View our latest analysis for Blue Square Real Estate

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

How Is Blue Square Real Estate's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Blue Square Real Estate's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 140%. The latest three year period has also seen an excellent 30% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Blue Square Real Estate's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Blue Square Real Estate's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Blue Square Real Estate revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Blue Square Real Estate (of which 1 can't be ignored!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.