Harel Insurance Investments & Financial Services Ltd's (TLV:HARL) Shares Leap 26% Yet They're Still Not Telling The Full Story

Despite an already strong run, Harel Insurance Investments & Financial Services Ltd (TLV:HARL) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 78%.

Even after such a large jump in price, Harel Insurance Investments & Financial Services may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.8x, since almost half of all companies in Israel have P/E ratios greater than 14x and even P/E's higher than 23x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Harel Insurance Investments & Financial Services certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Harel Insurance Investments & Financial Services.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Harel Insurance Investments & Financial Services' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 73% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 40% during the coming year according to the lone analyst following the company. With the market only predicted to deliver 32%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Harel Insurance Investments & Financial Services is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

The latest share price surge wasn't enough to lift Harel Insurance Investments & Financial Services' P/E close to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Harel Insurance Investments & Financial Services' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You always need to take note of risks, for example - Harel Insurance Investments & Financial Services has 1 warning sign we think you should be aware of.

You might be able to find a better investment than Harel Insurance Investments & Financial Services. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.