What Harel Insurance Investments & Financial Services Ltd's (TLV:HARL) P/E Is Not Telling You

With a median price-to-earnings (or "P/E") ratio of close to 15x in Israel, you could be forgiven for feeling indifferent about Harel Insurance Investments & Financial Services Ltd's (TLV:HARL) P/E ratio of 14.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Harel Insurance Investments & Financial Services has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. 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 Harel Insurance Investments & Financial Services

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Harel Insurance Investments & Financial Services will help you shine a light on its historical performance.

How Is Harel Insurance Investments & Financial Services' Growth Trending?

The only time you'd be comfortable seeing a P/E like Harel Insurance Investments & Financial Services' is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 26%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 40% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 31% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's somewhat alarming that Harel Insurance Investments & Financial Services' P/E sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

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.

Our examination of Harel Insurance Investments & Financial Services 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. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You need to take note of risks, for example - Harel Insurance Investments & Financial Services has 5 warning signs (and 2 which are concerning) we think you should know about.

If you're unsure about the strength of Harel Insurance Investments & Financial Services' 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. 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.
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