Enlight Renewable Energy Ltd (TLV:ENLT) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

Enlight Renewable Energy Ltd (TLV:ENLT) shares have had a really impressive month, gaining 26% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.0% in the last twelve months.

Since its price has surged higher, Enlight Renewable Energy may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 34.4x, since almost half of all companies in Israel have P/E ratios under 10x and even P/E's lower than 7x 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.

Recent times have been pleasing for Enlight Renewable Energy as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Enlight Renewable Energy

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Enlight Renewable Energy.

Is There Enough Growth For Enlight Renewable Energy?

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

If we review the last year of earnings growth, the company posted a terrific increase of 164%. The latest three year period has also seen an excellent 1,627% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the five analysts covering the company suggest earnings growth is heading into negative territory, declining 59% over the next year. Meanwhile, the broader market is forecast to expand by 22%, which paints a poor picture.

In light of this, it's alarming that Enlight Renewable Energy's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh heavily on the share price eventually.

What We Can Learn From Enlight Renewable Energy's P/E?

Enlight Renewable Energy's P/E is flying high just like its stock has during the last month. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Enlight Renewable Energy's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a poor outlook with earnings heading backwards, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 3 warning signs for Enlight Renewable Energy (2 are concerning!) that we have uncovered.

Of course, you might also be able to find a better stock than Enlight Renewable Energy. 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.