Investors Don't See Light At End Of Migdal Insurance and Financial Holdings Ltd.'s (TLV:MGDL) Tunnel

When close to half the companies in Israel have price-to-earnings ratios (or "P/E's") above 17x, you may consider Migdal Insurance and Financial Holdings Ltd. (TLV:MGDL) as an attractive investment with its 12.1x 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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As an illustration, earnings have deteriorated at Migdal Insurance and Financial Holdings over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. 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 out of favour.

See our latest analysis for Migdal Insurance and Financial Holdings

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

How Is Migdal Insurance and Financial Holdings' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Migdal Insurance and Financial Holdings' to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 11%. This means it has also seen a slide in earnings over the longer-term as EPS is down 5.2% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 22% shows it's an unpleasant look.

With this information, we are not surprised that Migdal Insurance and Financial Holdings is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Migdal Insurance and Financial Holdings maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. 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 moving strongly in either direction in the near future under these circumstances.

You always need to take note of risks, for example - Migdal Insurance and Financial Holdings has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Migdal Insurance and Financial Holdings, 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.