Subdued Growth No Barrier To I.B.I. Investment House Ltd's (TLV:IBI) Price

When close to half the companies in Israel have price-to-earnings ratios (or "P/E's") below 16x, you may consider I.B.I. Investment House Ltd (TLV:IBI) as a stock to potentially avoid with its 24.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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For example, consider that I.B.I. Investment House's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for I.B.I. Investment House

Although there are no analyst estimates available for I.B.I. Investment House, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

In order to justify its P/E ratio, I.B.I. Investment House would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 32% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 68% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Comparing that to the market, which is predicted to deliver 21% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we find it concerning that I.B.I. Investment House is trading at a P/E higher than the market. It seems most investors are ignoring the fairly limited recent growth rates 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 recent growth rates.

The Final Word

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 much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Plus, you should also learn about these 2 warning signs we've spotted with I.B.I. Investment House (including 1 which shouldn't be ignored).

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.

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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.