There's Reason For Concern Over Mivne Real Estate (K.D) Ltd's (TLV:MVNE) Massive 25% Price Jump

Despite an already strong run, Mivne Real Estate (K.D) Ltd (TLV:MVNE) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days bring the annual gain to a very sharp 45%.

In spite of the firm bounce in price, there still wouldn't be many who think Mivne Real Estate (K.D)'s price-to-earnings (or "P/E") ratio of 14.9x is worth a mention when the median P/E in Israel is similar at about 16x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Recent times have been quite advantageous for Mivne Real Estate (K.D) as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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.

What Are Growth Metrics Telling Us About The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Mivne Real Estate (K.D)'s to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 139%. Still, incredibly EPS has fallen 23% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.8% shows it's an unpleasant look.

With this information, we find it concerning that Mivne Real Estate (K.D) is trading at a fairly similar P/E to 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. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

What We Can Learn From Mivne Real Estate (K.D)'s P/E?

Its shares have lifted substantially and now Mivne Real Estate (K.D)'s P/E is also back up to the market median. 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.

We've established that Mivne Real Estate (K.D) currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 3 warning signs for Mivne Real Estate (K.D) (2 can't be ignored!) that we have uncovered.

Of course, you might also be able to find a better stock than Mivne Real Estate (K.D). 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.