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) shares have continued their recent momentum with a 25% gain in the last month alone. The annual gain comes to 146% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Tel-Aviv Stock Exchange's price-to-earnings (or "P/E") ratio of 52.6x might make it look like a strong sell right now compared to the market in Israel, where around half of the companies have P/E ratios below 15x and even P/E's below 10x are quite common. 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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With earnings growth that's exceedingly strong of late, Tel-Aviv Stock Exchange has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Tel-Aviv Stock Exchange would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 49% last year. Pleasingly, EPS has also lifted 176% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Tel-Aviv Stock Exchange is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Tel-Aviv Stock Exchange's P/E

Tel-Aviv Stock Exchange's P/E is flying high just like its stock has during the last month. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

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. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Tel-Aviv Stock Exchange has 1 warning sign we think you should be aware of.

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.