Cautious Investors Not Rewarding Partner Communications Company Ltd.'s (TLV:PTNR) Performance Completely

It's not a stretch to say that Partner Communications Company Ltd.'s (TLV:PTNR) price-to-earnings (or "P/E") ratio of 17.6x right now seems quite "middle-of-the-road" compared to the market in Israel, where the median P/E ratio is around 16x. 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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Partner Communications certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Partner Communications

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Partner Communications will help you shine a light on its historical performance.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Partner Communications' is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 51%. Pleasingly, EPS has also lifted 89% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 9.1% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Partner Communications is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Partner Communications' P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Partner Communications revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Partner Communications with six simple checks.

If you're unsure about the strength of Partner Communications' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.