Earnings Not Telling The Story For Gilat Satellite Networks Ltd. (NASDAQ:GILT) After Shares Rise 27%

Gilat Satellite Networks Ltd. (NASDAQ:GILT) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last month tops off a massive increase of 132% in the last year.

Since its price has surged higher, Gilat Satellite Networks may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 46.5x, since almost half of all companies in the United States have P/E ratios under 19x and even P/E's lower than 11x 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 so lofty.

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Gilat Satellite Networks certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Gilat Satellite Networks

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

How Is Gilat Satellite Networks' Growth Trending?

Gilat Satellite Networks' 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.

Taking a look back first, we see that the company grew earnings per share by an impressive 42% last year. The strong recent performance means it was also able to grow EPS by 725% 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 four analysts covering the company suggest earnings growth is heading into negative territory, declining 16% over the next year. With the market predicted to deliver 16% growth , that's a disappointing outcome.

With this information, we find it concerning that Gilat Satellite Networks is trading at a P/E higher than the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Final Word

Gilat Satellite Networks' P/E is flying high just like its stock has during the last month. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Gilat Satellite Networks currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Gilat Satellite 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.