How Does BioTelemetry's (NASDAQ:BEAT) P/E Compare To Its Industry, After Its Big Share Price Gain?
Those holding BioTelemetry (NASDAQ:BEAT) shares must be pleased that the share price has rebounded 37% in the last thirty days. But unfortunately, the stock is still down by 18% over a quarter. But shareholders may not all be feeling jubilant, since the share price is still down 19% in the last year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
Check out our latest analysis for BioTelemetry
How Does BioTelemetry's P/E Ratio Compare To Its Peers?
BioTelemetry's P/E of 50.53 indicates some degree of optimism towards the stock. The image below shows that BioTelemetry has a higher P/E than the average (20.8) P/E for companies in the healthcare industry.
Its relatively high P/E ratio indicates that BioTelemetry shareholders think it will perform better than other companies in its industry classification. The market is optimistic about the future, but that doesn't guarantee future growth. So further research is always essential. I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
If earnings fall then in the future the 'E' will be lower. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.
BioTelemetry shrunk earnings per share by 33% over the last year. And over the longer term (3 years) earnings per share have decreased 23% annually. This might lead to low expectations.
Remember: P/E Ratios Don't Consider The Balance Sheet
Don't forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).
So What Does BioTelemetry's Balance Sheet Tell Us?
Net debt totals just 8.3% of BioTelemetry's market cap. So it doesn't have as many options as it would with net cash, but its debt would not have much of an impact on its P/E ratio.
The Verdict On BioTelemetry's P/E Ratio
With a P/E ratio of 50.5, BioTelemetry is expected to grow earnings very strongly in the years to come. With some debt but no EPS growth last year, the market has high expectations of future profits. What we know for sure is that investors have become much more excited about BioTelemetry recently, since they have pushed its P/E ratio from 37.0 to 50.5 over the last month. If you like to buy stocks that have recently impressed the market, then this one might be a candidate; but if you prefer to invest when there is 'blood in the streets', then you may feel the opportunity has passed.
When the market is wrong about a stock, it gives savvy investors an opportunity. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.
Of course you might be able to find a better stock than BioTelemetry. So you may wish to see this free collection of other companies that have grown earnings strongly.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
