The Price Is Right For Camtek Ltd. (NASDAQ:CAMT) Even After Diving 25%

To the annoyance of some shareholders, Camtek Ltd. (NASDAQ:CAMT) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Looking at the bigger picture, even after this poor month the stock is up 32% in the last year.

In spite of the heavy fall in price, Camtek may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 35.5x, since almost half of all companies in the United States have P/E ratios under 18x and even P/E's lower than 10x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Camtek certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, 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.

Check out our latest analysis for Camtek

Keen to find out how analysts think Camtek's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Camtek's Growth Trending?

Camtek's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. The strong recent performance means it was also able to grow EPS by 106% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 20% per annum over the next three years. That's shaping up to be materially higher than the 10% each year growth forecast for the broader market.

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

The Bottom Line On Camtek's P/E

Camtek's shares may have retreated, but its P/E is still flying high. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Camtek's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Camtek that you need to be mindful of.

If these risks are making you reconsider your opinion on Camtek, 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.