Optimistic Investors Push I.B.I. Investment House Ltd (TLV:IBI) Shares Up 25% But Growth Is Lacking

I.B.I. Investment House Ltd (TLV:IBI) shares have continued their recent momentum with a 25% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 80% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about I.B.I. Investment House's P/E ratio of 15.8x, since the median price-to-earnings (or "P/E") ratio in Israel is also close to 15x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

For example, consider that I.B.I. Investment House's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for I.B.I. Investment House

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 I.B.I. Investment House's earnings, revenue and cash flow.

How Is I.B.I. Investment House's Growth Trending?

The only time you'd be comfortable seeing a P/E like I.B.I. Investment House's is when the company's growth is tracking the market closely.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 2.7%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.

With this information, we find it interesting that I.B.I. Investment House is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On I.B.I. Investment House's P/E

Its shares have lifted substantially and now I.B.I. Investment House's P/E is also back up to the market median. 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 I.B.I. Investment House currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely 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 I.B.I. Investment House is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than I.B.I. Investment House. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.