El Al Israel Airlines Ltd. (TLV:ELAL) Stock Rockets 41% But Many Are Still Ignoring The Company

Despite an already strong run, El Al Israel Airlines Ltd. (TLV:ELAL) shares have been powering on, with a gain of 41% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 66% in the last year.

Although its price has surged higher, it would still be understandable if you think El Al Israel Airlines is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.1x, considering almost half the companies in Israel's Airlines industry have P/S ratios above 0.9x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for El Al Israel Airlines

What Does El Al Israel Airlines' P/S Mean For Shareholders?

Recent times have been quite advantageous for El Al Israel Airlines as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. 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 out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like El Al Israel Airlines' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 41% gain to the company's top line. The latest three year period has also seen an excellent 132% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 24%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in mind, we find it intriguing that El Al Israel Airlines' P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On El Al Israel Airlines' P/S

Despite El Al Israel Airlines' share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We're very surprised to see El Al Israel Airlines currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with El Al Israel Airlines (at least 2 which are a bit concerning), and understanding them should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. 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.