Stock Analysis

Market Cool On Migdal Insurance and Financial Holdings Ltd.'s (TLV:MGDL) Earnings

TASE:MGDL
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With a price-to-earnings (or "P/E") ratio of 4.6x Migdal Insurance and Financial Holdings Ltd. (TLV:MGDL) may be sending very bullish signals at the moment, given that almost half of all companies in Israel have P/E ratios greater than 14x and even P/E's higher than 21x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Migdal Insurance and Financial Holdings has been doing very well. 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 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.

View our latest analysis for Migdal Insurance and Financial Holdings

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TASE:MGDL Price Based on Past Earnings April 15th 2022
Although there are no analyst estimates available for Migdal Insurance and Financial Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

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

Retrospectively, the last year delivered an exceptional 284% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 222% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 30% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Migdal Insurance and Financial Holdings is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Migdal Insurance and Financial Holdings' 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.

Our examination of Migdal Insurance and Financial Holdings revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Migdal Insurance and Financial Holdings with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Migdal Insurance and Financial Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Valuation is complex, but we're helping make it simple.

Find out whether Migdal Insurance and Financial Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.