Investors Aren't Buying Libra Insurance Company Ltd's (TLV:LBRA) Earnings

When close to half the companies in Israel have price-to-earnings ratios (or "P/E's") above 16x, you may consider Libra Insurance Company Ltd (TLV:LBRA) as an attractive investment with its 12.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Libra Insurance certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Libra 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 Libra Insurance's earnings, revenue and cash flow.

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

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

If we review the last year of earnings growth, the company posted a terrific increase of 130%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Libra Insurance's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Libra Insurance's 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.

As we suspected, our examination of Libra Insurance revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Libra Insurance is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Libra 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.