Ceragon Networks Ltd.'s (NASDAQ:CRNT) Shares Leap 35% Yet They're Still Not Telling The Full Story

Ceragon Networks Ltd. (NASDAQ:CRNT) shares have had a really impressive month, gaining 35% 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 5.2% in the last twelve months.

Even after such a large jump in price, Ceragon Networks may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 16.8x, since almost half of all companies in the United States have P/E ratios greater than 20x and even P/E's higher than 35x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Recent times have been advantageous for Ceragon Networks as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

Check out our latest analysis for Ceragon Networks

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

What Are Growth Metrics Telling Us About The Low P/E?

Ceragon Networks' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 27% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 23% per annum as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 11% per annum, which is noticeably less attractive.

In light of this, it's peculiar that Ceragon Networks' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Ceragon Networks' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that Ceragon Networks currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Ceragon Networks that you should be aware of.

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.

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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.