Carasso Motors Ltd. (TLV:CRSM) Stock Catapults 28% Though Its Price And Business Still Lag The Market

Carasso Motors Ltd. (TLV:CRSM) shareholders have had their patience rewarded with a 28% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 85% in the last year.

Even after such a large jump in price, Carasso Motors may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.6x, since almost half of all companies in Israel have P/E ratios greater than 17x and even P/E's higher than 26x are not unusual. 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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Recent times have been quite advantageous for Carasso Motors as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Carasso Motors

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 Carasso Motors' earnings, revenue and cash flow.

How Is Carasso Motors' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Carasso Motors' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 77% gain to the company's bottom line. Still, incredibly EPS has fallen 11% in total from three years ago, which is quite disappointing. 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 9.8% shows it's an unpleasant look.

With this information, we are not surprised that Carasso Motors is trading at a P/E lower than the market. 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 Final Word

Despite Carasso Motors' shares building up a head of steam, its P/E still lags most other companies. 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.

We've established that Carasso Motors maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Carasso Motors (2 are significant!) that you need to be mindful of.

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

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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.