Polygon Real Estate Ltd's (TLV:POLY) Price Is Out Of Tune With Earnings

There wouldn't be many who think Polygon Real Estate Ltd's (TLV:POLY) price-to-earnings (or "P/E") ratio of 16.5x is worth a mention when the median P/E in Israel is similar at about 17x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Earnings have risen firmly for Polygon Real Estate recently, which is pleasing to see. One possibility is that the P/E is moderate because investors think this respectable 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.

View our latest analysis for Polygon Real Estate

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 Polygon Real Estate's earnings, revenue and cash flow.

How Is Polygon Real Estate's Growth Trending?

The only time you'd be comfortable seeing a P/E like Polygon Real Estate's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a decent 9.9% gain to the company's bottom line. EPS has also lifted 8.7% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 63% shows it's noticeably less attractive on an annualised basis.

With this information, we find it interesting that Polygon Real Estate is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From Polygon Real Estate's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Polygon Real Estate revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about these 2 warning signs we've spotted with Polygon Real Estate (including 1 which shouldn't be ignored).

You might be able to find a better investment than Polygon Real Estate. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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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