Harel Insurance Investments & Financial Services Ltd's (TLV:HARL) Shares Not Telling The Full Story

With a price-to-earnings (or "P/E") ratio of 8.2x Harel Insurance Investments & Financial Services Ltd (TLV:HARL) may be sending bullish signals at the moment, given that almost half of all companies in Israel have P/E ratios greater than 13x and even P/E's higher than 21x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, Harel Insurance Investments & Financial Services has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

Check out our latest analysis for Harel Insurance Investments & Financial Services

Want the full picture on analyst estimates for the company? Then our free report on Harel Insurance Investments & Financial Services will help you uncover what's on the horizon.

Is There Any Growth For Harel Insurance Investments & Financial Services?

There's an inherent assumption that a company should underperform the market for P/E ratios like Harel Insurance Investments & Financial Services' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 154%. Still, incredibly EPS has fallen 10% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 20% per annum over the next three years. That's shaping up to be materially higher than the 15% per year growth forecast for the broader market.

In light of this, it's peculiar that Harel Insurance Investments & Financial Services' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Harel Insurance Investments & Financial Services' P/E?

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 Harel Insurance Investments & Financial Services currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 1 warning sign for Harel Insurance Investments & Financial Services that we have uncovered.

Of course, you might also be able to find a better stock than Harel Insurance Investments & Financial Services. 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.