Investor Optimism Abounds Hiper Global Ltd. (TLV:HIPR) But Growth Is Lacking

With a median price-to-earnings (or "P/E") ratio of close to 16x in Israel, you could be forgiven for feeling indifferent about Hiper Global Ltd.'s (TLV:HIPR) P/E ratio of 17x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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For example, consider that Hiper Global's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Hiper Global

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hiper Global will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Hiper Global's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 9.8%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 28% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Comparing that to the market, which is predicted to deliver 22% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we find it interesting that Hiper Global is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Final Word

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.

Our examination of Hiper Global 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. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Hiper Global with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Hiper Global. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.