Investors Still Waiting For A Pull Back In Y.H. Dimri Construction & Development Ltd (TLV:DIMRI)

When close to half the companies in Israel have price-to-earnings ratios (or "P/E's") below 11x, you may consider Y.H. Dimri Construction & Development Ltd (TLV:DIMRI) as a stock to avoid entirely with its 21.9x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Y.H. Dimri Construction & Development over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Y.H. Dimri Construction & Development

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Y.H. Dimri Construction & Development will help you shine a light on its historical performance.

How Is Y.H. Dimri Construction & Development's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Y.H. Dimri Construction & Development's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 9.2%. Even so, admirably EPS has lifted 60% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome 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 13% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Y.H. Dimri Construction & Development is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

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.

As we suspected, our examination of Y.H. Dimri Construction & Development revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Y.H. Dimri Construction & Development you should know about.

Of course, you might also be able to find a better stock than Y.H. Dimri Construction & Development. 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.