Investors Holding Back On Harel Insurance Investments & Financial Services Ltd (TLV:HARL)

With a median price-to-earnings (or "P/E") ratio of close to 13x in Israel, you could be forgiven for feeling indifferent about Harel Insurance Investments & Financial Services Ltd's (TLV:HARL) P/E ratio of 12.5x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Harel Insurance Investments & Financial Services has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is moderate because investors think the company's earnings trend will eventually fall in line with most others in the market. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders may be a little nervous about the viability of the share price.

See 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.

What Are Growth Metrics Telling Us About The P/E?

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

Retrospectively, the last year delivered a frustrating 37% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 8.3% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 28% as estimated by the one analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 14%, which is noticeably less attractive.

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

The Bottom Line On Harel Insurance Investments & Financial Services' P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Harel Insurance Investments & Financial Services currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Harel Insurance Investments & Financial Services you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.