Little Excitement Around ICL Group Ltd's (TLV:ICL) Earnings

ICL Group Ltd's (TLV:ICL) price-to-earnings (or "P/E") ratio of 7.1x might make it look like a buy right now compared to the market in Israel, where around half of the companies have P/E ratios above 11x and even P/E's above 19x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times haven't been advantageous for ICL Group as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for ICL Group

Want the full picture on analyst estimates for the company? Then our free report on ICL Group will help you uncover what's on the horizon.

How Is ICL Group's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like ICL Group's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 57%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to slump, contracting by 27% during the coming year according to the six analysts following the company. Meanwhile, the broader market is forecast to expand by 22%, which paints a poor picture.

With this information, we are not surprised that ICL Group is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of ICL Group's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 3 warning signs for ICL Group (1 can't be ignored!) that you need to take into consideration.

Of course, you might also be able to find a better stock than ICL Group. 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.