The Phoenix Holdings Ltd. (TLV:PHOE) Might Not Be As Mispriced As It Looks

With a median price-to-earnings (or "P/E") ratio of close to 12x in Israel, you could be forgiven for feeling indifferent about The Phoenix Holdings Ltd.'s (TLV:PHOE) P/E ratio of 11.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings that are retreating more than the market's of late, Phoenix Holdings has been very sluggish. One possibility is that the P/E is moderate because investors think the company's earnings trend will eventually fall in line with most others in the market. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Phoenix Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Phoenix Holdings.

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Phoenix 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 39%. The last three years don't look nice either as the company has shrunk EPS by 33% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 32% per year during the coming three years according to the lone analyst following the company. With the market only predicted to deliver 20% per annum, the company is positioned for a stronger earnings result.

With this information, we find it interesting that Phoenix Holdings is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Phoenix Holdings' P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Phoenix Holdings' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Phoenix Holdings that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.