There's Reason For Concern Over Clal Insurance Enterprises Holdings Ltd.'s (TLV:CLIS) Massive 27% Price Jump

Clal Insurance Enterprises Holdings Ltd. (TLV:CLIS) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 130% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Clal Insurance Enterprises Holdings' price-to-earnings (or "P/E") ratio of 12.6x is worth a mention when the median P/E in Israel is similar at about 15x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Clal Insurance Enterprises Holdings certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Clal Insurance Enterprises Holdings

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 Clal Insurance Enterprises Holdings' earnings, revenue and cash flow.

Is There Some Growth For Clal Insurance Enterprises Holdings?

There's an inherent assumption that a company should be matching the market for P/E ratios like Clal Insurance Enterprises Holdings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 30%. Still, incredibly EPS has fallen 43% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.1% shows it's an unpleasant look.

With this information, we find it concerning that Clal Insurance Enterprises Holdings is trading at a fairly similar P/E to the market. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

The Key Takeaway

Clal Insurance Enterprises Holdings' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Clal Insurance Enterprises Holdings revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely 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.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Clal Insurance Enterprises Holdings with six simple checks.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.