Investors Appear Satisfied With The Tel-Aviv Stock Exchange Ltd.'s (TLV:TASE) Prospects As Shares Rocket 25%

The Tel-Aviv Stock Exchange Ltd. (TLV:TASE) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. The last month tops off a massive increase of 104% in the last year.

After such a large jump in price, Tel-Aviv Stock Exchange may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 46.7x, since almost half of all companies in Israel have P/E ratios under 14x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Tel-Aviv Stock Exchange certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Tel-Aviv Stock Exchange

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 Tel-Aviv Stock Exchange's earnings, revenue and cash flow.

How Is Tel-Aviv Stock Exchange's Growth Trending?

Tel-Aviv Stock Exchange's 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 34% last year. The latest three year period has also seen an excellent 152% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 23% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that Tel-Aviv Stock Exchange's 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 Final Word

Tel-Aviv Stock Exchange's P/E is flying high just like its stock has during the last month. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Tel-Aviv Stock Exchange maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Tel-Aviv Stock Exchange with six simple checks.

If you're unsure about the strength of Tel-Aviv Stock Exchange's 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.