Some Confidence Is Lacking In Kardan Real Estate Enterprise and Development Ltd (TLV:KARE) As Shares Slide 25%

Kardan Real Estate Enterprise and Development Ltd (TLV:KARE) shares have had a horrible month, losing 25% after a relatively good period beforehand. Indeed, the recent drop has reduced its annual gain to a relatively sedate 3.1% over the last twelve months.

Although its price has dipped substantially, given around half the companies in Israel have price-to-earnings ratios (or "P/E's") below 13x, you may still consider Kardan Real Estate Enterprise and Development as a stock to potentially avoid with its 18.5x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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For example, consider that Kardan Real Estate Enterprise and Development's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Kardan Real Estate Enterprise and Development

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 Kardan Real Estate Enterprise and Development's earnings, revenue and cash flow.

How Is Kardan Real Estate Enterprise and Development's Growth Trending?

Kardan Real Estate Enterprise and Development's 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, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 29%. As a result, earnings from three years ago have also fallen 40% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Kardan Real Estate Enterprise and Development is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Kardan Real Estate Enterprise and Development's P/E?

There's still some solid strength behind Kardan Real Estate Enterprise and Development's P/E, if not its share price lately. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Kardan Real Estate Enterprise and Development revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Having said that, be aware Kardan Real Estate Enterprise and Development is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

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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.