Migdal Insurance and Financial Holdings Ltd.'s (TLV:MGDL) Price Is Right But Growth Is Lacking

When close to half the companies in Israel have price-to-earnings ratios (or "P/E's") above 15x, you may consider Migdal Insurance and Financial Holdings Ltd. (TLV:MGDL) as an attractive investment with its 7.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Migdal Insurance and Financial Holdings 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 Migdal Insurance and Financial Holdings

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 Migdal Insurance and Financial Holdings' earnings, revenue and cash flow.

How Is Migdal Insurance and Financial Holdings' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Migdal Insurance and Financial Holdings' 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 141%. Still, incredibly EPS has fallen 14% in total from three years ago, which is quite disappointing. 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 23% shows it's an unpleasant look.

In light of this, it's understandable that Migdal Insurance and Financial Holdings' P/E would sit below the majority of other companies. 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. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

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 sliding earnings over the medium-term, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Migdal Insurance and Financial Holdings with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Migdal Insurance and Financial Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.