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Formula Systems (1985) (TASE:FORTY) drew attention after reporting first quarter 2026 results, with sales of US$738.29 million and net income of US$35.64 million, alongside higher basic and diluted earnings per share.
See our latest analysis for Formula Systems (1985).
The latest quarterly numbers arrived after a weak run for the stock, with a 7 day share price return of down 11.53% and a year to date share price return of down 31.26%. However, the 3 year total shareholder return is 69.59%, so recent momentum has faded against a stronger longer term record.
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With earnings per share higher than last year but the share price under pressure in 2026, it raises a key question for you: is Formula Systems (1985) now trading below its fundamentals, or is the market already pricing in future growth?
Preferred P/E of 32.3x: Is It Justified?
On valuation, Formula Systems (1985) is currently trading on a P/E of 32.3x, compared with a peer average of 19.3x and an Asian IT industry average of 18.6x. This points to a richer pricing for its earnings at the last close of ₪371.2.
The P/E ratio compares the company's share price with its earnings per share. A higher P/E suggests investors are paying more for each unit of current earnings. For an IT and software focused group like Formula Systems (1985), that kind of premium can reflect expectations for future earnings strength or perceived quality of the earnings stream, rather than just today's profit level.
Here, the market is assigning a materially higher multiple than both direct peers and the broader Asian IT industry, even though the company has reported a decline of 21.5% in earnings over the past year and its current net profit margin of 2.3% is below last year's 2.8%. That gap suggests investors are either looking past recent profit pressure or placing particular value on its earnings profile and long term track record, while accepting a lower Return on Equity of 7.6% and a DCF estimate of future cash flow value at ₪72.61 per share that is well below the current price.
Against an industry average P/E of 18.6x, a multiple of 32.3x is a clear step up rather than a marginal premium. This means you are paying significantly more than the sector norm for the same unit of earnings, without a fair ratio guide to indicate where the market might eventually settle. See what the numbers say about this price — find out in our valuation breakdown.
Result: Price-to-Earnings of 32.3x (OVERVALUED)
However, you still need to weigh risks such as the wide gap to the ₪72.61 DCF estimate and the relatively low 2.3% net margin if conditions tighten.
Find out about the key risks to this Formula Systems (1985) narrative.
Another View: Our DCF Model Paints A Sharper Picture
The P/E of 32.3x suggests a premium stock, but our DCF model points in the opposite direction, with an estimated future cash flow value of ₪72.61 per share versus a market price of ₪371.2. That kind of gap signals valuation risk you cannot ignore, so which lens do you trust more?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day ( check out Formula Systems (1985) for example ). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 209 high quality undervalued stocks . If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
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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.
Companies discussed in this article include FORTY.TA .
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