NextVision Stabilized Systems, Ltd. (TLV:NXSN) Looks Just Right With A 28% Price Jump

Despite an already strong run, NextVision Stabilized Systems, Ltd. (TLV:NXSN) shares have been powering on, with a gain of 28% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 82% in the last year.

Following the firm bounce in price, NextVision Stabilized Systems may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 31.7x, since almost half of all companies in Israel have P/E ratios under 14x 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 highly elevated P/E.

NextVision Stabilized Systems certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for NextVision Stabilized Systems

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 NextVision Stabilized Systems' earnings, revenue and cash flow.

How Is NextVision Stabilized Systems' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like NextVision Stabilized Systems' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 182% gain to the company's bottom line. The latest three year period has also seen an excellent 1,020% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 37% 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 NextVision Stabilized Systems' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

The strong share price surge has got NextVision Stabilized Systems' P/E rushing to great heights as well. 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.

As we suspected, our examination of NextVision Stabilized Systems 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. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

You need to take note of risks, for example - NextVision Stabilized Systems has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If these risks are making you reconsider your opinion on NextVision Stabilized Systems, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.