Aran Research & Development (1982) Ltd. (TLV:ARAN) Stock Rockets 27% As Investors Are Less Pessimistic Than Expected
Despite an already strong run, Aran Research & Development (1982) Ltd. (TLV:ARAN) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days bring the annual gain to a very sharp 99%.
Even after such a large jump in price, there still wouldn't be many who think Aran Research & Development (1982)'s price-to-earnings (or "P/E") ratio of 16.8x is worth a mention when the median P/E in Israel is similar at about 16x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
With earnings growth that's exceedingly strong of late, Aran Research & Development (1982) has been doing very well. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
View our latest analysis for Aran Research & Development (1982)
Does Growth Match The P/E?
There's an inherent assumption that a company should be matching the market for P/E ratios like Aran Research & Development (1982)'s to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 149% last year. Still, incredibly EPS has fallen 34% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Comparing that to the market, which is predicted to deliver 23% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.
In light of this, it's somewhat alarming that Aran Research & Development (1982)'s P/E sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.
What We Can Learn From Aran Research & Development (1982)'s P/E?
Its shares have lifted substantially and now Aran Research & Development (1982)'s P/E is also back up to the market median. 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.
Our examination of Aran Research & Development (1982) revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.
Having said that, be aware Aran Research & Development (1982) is showing 3 warning signs in our investment analysis, you should know about.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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