Stock Analysis

Alony-Hetz Properties & Investments Ltd's (TLV:ALHE) Price Is Right But Growth Is Lacking After Shares Rocket 25%

TASE:ALHE
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Alony-Hetz Properties & Investments Ltd (TLV:ALHE) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 16% over that time.

Although its price has surged higher, Alony-Hetz Properties & Investments' price-to-earnings (or "P/E") ratio of 9x might still 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 15x and even P/E's above 26x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Alony-Hetz Properties & Investments certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

View our latest analysis for Alony-Hetz Properties & Investments

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TASE:ALHE Price Based on Past Earnings November 26th 2020
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Alony-Hetz Properties & Investments will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Alony-Hetz Properties & Investments' is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 97% last year. The latest three year period has also seen a 21% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Alony-Hetz Properties & Investments is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Alony-Hetz Properties & Investments' P/E

Despite Alony-Hetz Properties & Investments' shares building up a head of steam, its P/E still lags most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Alony-Hetz Properties & Investments revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for Alony-Hetz Properties & Investments (1 is concerning!) that we have uncovered.

Of course, you might also be able to find a better stock than Alony-Hetz Properties & Investments. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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This article by Simply Wall St is general in nature. 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.
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