What The Phoenix Holdings Ltd's (TLV:PHOE) 27% Share Price Gain Is Not Telling You

Despite an already strong run, The Phoenix Holdings Ltd (TLV:PHOE) shares have been powering on, with a gain of 27% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 4.7% isn't as impressive.

After such a large jump in price, given close to half the companies in Israel have price-to-earnings ratios (or "P/E's") below 14x, you may consider Phoenix Holdings as a stock to potentially avoid with its 17.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

For instance, Phoenix Holdings' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Phoenix Holdings

Although there are no analyst estimates available for Phoenix Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Phoenix Holdings' Growth Trending?

In order to justify its P/E ratio, Phoenix Holdings would need to produce impressive growth in excess of the market.

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 29%. This means it has also seen a slide in earnings over the longer-term as EPS is down 65% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 32% shows it's an unpleasant look.

With this information, we find it concerning that Phoenix Holdings is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Phoenix Holdings' P/E?

Phoenix Holdings shares have received a push in the right direction, but its P/E is elevated too. 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.

We've established that Phoenix Holdings currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Phoenix Holdings (2 make us uncomfortable!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Phoenix Holdings. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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This article by Simply Wall St is general in nature. 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.
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