Migdal Insurance and Financial Holdings Ltd. (TLV:MGDL) Surges 26% Yet Its Low P/E Is No Reason For Excitement

The Migdal Insurance and Financial Holdings Ltd. (TLV:MGDL) share price has done very well over the last month, posting an excellent gain of 26%. The last 30 days bring the annual gain to a very sharp 46%.

Even after such a large jump in price, Migdal Insurance and Financial Holdings' price-to-earnings (or "P/E") ratio of 4.9x might still make it look like a strong buy right now compared to the market in Israel, where around half of the companies have P/E ratios above 12x and even P/E's above 20x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's exceedingly strong of late, Migdal Insurance and Financial Holdings has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, 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.

View 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.

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

Migdal Insurance and Financial Holdings' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 193%. As a result, it also grew EPS by 15% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

This is in contrast to the rest of the market, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Migdal Insurance and Financial Holdings' 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 Migdal Insurance and Financial Holdings' P/E

Even after such a strong price move, Migdal Insurance and Financial Holdings' P/E still trails the rest of the market significantly. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Migdal Insurance and Financial Holdings maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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 rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Migdal Insurance and Financial Holdings with six simple checks.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.