Lewinsky-Ofer Ltd.'s (TLV:LEOF) Shares Climb 28% But Its Business Is Yet to Catch Up

Lewinsky-Ofer Ltd. (TLV:LEOF) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The annual gain comes to 110% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, it's still not a stretch to say that Lewinsky-Ofer's price-to-sales (or "P/S") ratio of 3.6x right now seems quite "middle-of-the-road" compared to the Real Estate industry in Israel, where the median P/S ratio is around 4.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for Lewinsky-Ofer

How Lewinsky-Ofer Has Been Performing

Lewinsky-Ofer certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Lewinsky-Ofer will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Lewinsky-Ofer's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Lewinsky-Ofer?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Lewinsky-Ofer's to be considered reasonable.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. However, this wasn't enough as the latest three year period has seen the company endure a nasty 56% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 11% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Lewinsky-Ofer is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Final Word

Its shares have lifted substantially and now Lewinsky-Ofer's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

The fact that Lewinsky-Ofer currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

It is also worth noting that we have found 3 warning signs for Lewinsky-Ofer (1 is significant!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Lewinsky-Ofer, 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.