Mivne Real Estate (K.D) Ltd's (TLV:MVNE) Share Price Could Signal Some Risk

With a price-to-earnings (or "P/E") ratio of 19.9x Mivne Real Estate (K.D) Ltd (TLV:MVNE) may be sending very bearish signals at the moment, given that almost half of all companies in Israel have P/E ratios under 12x and even P/E's lower than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

For instance, Mivne Real Estate (K.D)'s receding earnings in recent times would have to be some food for thought. 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.

Check out our latest analysis for Mivne Real Estate (K.D)

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 Mivne Real Estate (K.D)'s earnings, revenue and cash flow.

Is There Enough Growth For Mivne Real Estate (K.D)?

The only time you'd be truly comfortable seeing a P/E as steep as Mivne Real Estate (K.D)'s is when the company's growth is on track to outshine the market decidedly.

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 74%. The last three years don't look nice either as the company has shrunk EPS by 44% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 12% shows it's an unpleasant look.

With this information, we find it concerning that Mivne Real Estate (K.D) is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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.

The Bottom Line On Mivne Real Estate (K.D)'s P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Mivne Real Estate (K.D) 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. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Mivne Real Estate (K.D) (of which 1 is a bit unpleasant!) you should know about.

If you're unsure about the strength of Mivne Real Estate (K.D)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.