Risks To Shareholder Returns Are Elevated At These Prices For Bezeq The Israel Telecommunication Corp. Ltd (TLV:BEZQ)

There wouldn't be many who think Bezeq The Israel Telecommunication Corp. Ltd's (TLV:BEZQ) price-to-earnings (or "P/E") ratio of 14.8x is worth a mention when the median P/E in Israel is similar at about 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Bezeq The Israel Telecommunication could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Bezeq The Israel Telecommunication

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Does Growth Match The P/E?

In order to justify its P/E ratio, Bezeq The Israel Telecommunication would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 9.3%. The solid recent performance means it was also able to grow EPS by 14% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 4.4% per annum as estimated by the dual analysts watching the company. With the market predicted to deliver 11% growth each year, the company is positioned for a weaker earnings result.

With this information, we find it interesting that Bezeq The Israel Telecommunication is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

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.

Our examination of Bezeq The Israel Telecommunication's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 2 warning signs for Bezeq The Israel Telecommunication that you need to take into consideration.

You might be able to find a better investment than Bezeq The Israel Telecommunication. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.