Edwards Lifesciences Corporation's (NYSE:EW) Share Price Matching Investor Opinion
Edwards Lifesciences Corporation's (NYSE:EW) price-to-earnings (or "P/E") ratio of 64.3x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 19x and even P/E's below 10x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Edwards Lifesciences has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for Edwards Lifesciences
Want the full picture on analyst estimates for the company? Then our free report on Edwards Lifesciences will help you uncover what's on the horizon.
How Is Edwards Lifesciences' Growth Trending?
There's an inherent assumption that a company should far outperform the market for P/E ratios like Edwards Lifesciences' to be considered reasonable.
If we review the last year of earnings growth, the company posted a worthy increase of 2.6%. The latest three year period has also seen a 5.9% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 27% per year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 13% per annum growth forecast for the broader market.
With this information, we can see why Edwards Lifesciences is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From Edwards Lifesciences' P/E?
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Edwards Lifesciences maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.
It is also worth noting that we have found 2 warning signs for Edwards Lifesciences that you need to take into consideration.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.
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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
