Earnings Not Telling The Story For I.D.I. Insurance Company Ltd. (TLV:IDIN)

There wouldn't be many who think I.D.I. Insurance Company Ltd.'s (TLV:IDIN) price-to-earnings (or "P/E") ratio of 10.4x is worth a mention when the median P/E in Israel is similar at about 11x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's exceedingly strong of late, I.D.I. Insurance has been doing very well. 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.

See our latest analysis for I.D.I. Insurance

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 I.D.I. Insurance's earnings, revenue and cash flow.

How Is I.D.I. Insurance's Growth Trending?

The only time you'd be comfortable seeing a P/E like I.D.I. Insurance's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 63% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 23% drop in EPS in aggregate. 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 22% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that I.D.I. Insurance 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

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 I.D.I. Insurance 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. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 2 warning signs for I.D.I. Insurance (1 is potentially serious!) that you need to be mindful of.

If these risks are making you reconsider your opinion on I.D.I. Insurance, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.