More Provident Funds Ltd's (TLV:MPP) 26% Jump Shows Its Popularity With Investors

More Provident Funds Ltd (TLV:MPP) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last month tops off a massive increase of 167% in the last year.

Since its price has surged higher, More Provident Funds may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 30x, since almost half of all companies in Israel have P/E ratios under 15x and even P/E's lower than 10x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Recent times have been quite advantageous for More Provident Funds as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for More Provident Funds

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 More Provident Funds' earnings, revenue and cash flow.

How Is More Provident Funds' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as More Provident Funds' is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 41%. The strong recent performance means it was also able to grow EPS by 1,560% 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 21% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that More Provident Funds' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

Shares in More Provident Funds have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of More Provident Funds revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for More Provident Funds that you need to be mindful of.

If you're unsure about the strength of More Provident Funds' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.