Israel Shipyards Industries Ltd (TLV:ISHI) Shares Fly 27% But Investors Aren't Buying For Growth
The Israel Shipyards Industries Ltd (TLV:ISHI) share price has done very well over the last month, posting an excellent gain of 27%. Looking back a bit further, it's encouraging to see the stock is up 55% in the last year.
Although its price has surged higher, given about half the companies operating in Israel's Aerospace & Defense industry have price-to-sales ratios (or "P/S") above 4.1x, you may still consider Israel Shipyards Industries as an attractive investment with its 2.6x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Israel Shipyards Industries
What Does Israel Shipyards Industries' P/S Mean For Shareholders?
The revenue growth achieved at Israel Shipyards Industries over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. 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.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Israel Shipyards Industries' earnings, revenue and cash flow.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 Israel Shipyards Industries' to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 21%. Revenue has also lifted 13% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
With this information, we can see why Israel Shipyards Industries is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.
The Bottom Line On Israel Shipyards Industries' P/S
Despite Israel Shipyards Industries' share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
Our examination of Israel Shipyards Industries confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.
Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Israel Shipyards Industries (2 don't sit too well with us) you should be aware of.
If these risks are making you reconsider your opinion on Israel Shipyards Industries, 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.