Rani Zim Shopping Centers Ltd's (TLV:RANI) Price Is Right But Growth Is Lacking

Rani Zim Shopping Centers Ltd's (TLV:RANI) price-to-earnings (or "P/E") ratio of 12x might make it look like a buy right now compared to the market in Israel, where around half of the companies have P/E ratios above 17x and even P/E's above 27x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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With earnings growth that's exceedingly strong of late, Rani Zim Shopping Centers has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform 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 out of favour.

Check out our latest analysis for Rani Zim Shopping Centers

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 Rani Zim Shopping Centers' earnings, revenue and cash flow.

Is There Any Growth For Rani Zim Shopping Centers?

In order to justify its P/E ratio, Rani Zim Shopping Centers would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 51% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 47% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 16% shows it's an unpleasant look.

In light of this, it's understandable that Rani Zim Shopping Centers' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

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.

As we suspected, our examination of Rani Zim Shopping Centers revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for Rani Zim Shopping Centers (1 is significant!) that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.