Market Participants Recognise Aura Investments Ltd.'s (TLV:AURA) Earnings Pushing Shares 28% Higher

Despite an already strong run, Aura Investments Ltd. (TLV:AURA) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 206% in the last year.

After such a large jump in price, Aura Investments may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 19.8x, since almost half of all companies in Israel have P/E ratios under 15x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times have been quite advantageous for Aura Investments as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Aura Investments

Although there are no analyst estimates available for Aura Investments, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Aura Investments' Growth Trending?

In order to justify its P/E ratio, Aura Investments would need to produce impressive growth in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 127% last year. The latest three year period has also seen an excellent 886% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

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

In light of this, it's understandable that Aura Investments' P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Aura Investments' P/E

The large bounce in Aura Investments' shares has lifted the company's P/E to a fairly high level. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Aura Investments revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Aura Investments (1 is significant!) that you need to be mindful of.

If you're unsure about the strength of Aura Investments' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.

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