NextVision Stabilized Systems, Ltd.'s (TLV:NXSN) 27% Jump Shows Its Popularity With Investors

NextVision Stabilized Systems, Ltd. (TLV:NXSN) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 87%.

Since its price has surged higher, given around half the companies in Israel have price-to-earnings ratios (or "P/E's") below 13x, you may consider NextVision Stabilized Systems as a stock to potentially avoid with its 18.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for NextVision Stabilized Systems

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

How Is NextVision Stabilized Systems' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 182% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 1,025% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 27% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why NextVision Stabilized Systems is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On NextVision Stabilized Systems' P/E

The large bounce in NextVision Stabilized Systems' 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.

We've established that NextVision Stabilized Systems maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. 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.

Before you take the next step, you should know about the 2 warning signs for NextVision Stabilized Systems (1 is potentially serious!) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.