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The Price Is Right For Fisher & Paykel Healthcare Corporation Limited (NZSE:FPH)

Simply Wall St
·3 mins read

With a price-to-earnings (or "P/E") ratio of 67x Fisher & Paykel Healthcare Corporation Limited (NZSE:FPH) may be sending very bearish signals at the moment, given that almost half of all companies in New Zealand have P/E ratios under 22x and even P/E's lower than 12x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Fisher & Paykel Healthcare 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Fisher & Paykel Healthcare

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Keen to find out how analysts think Fisher & Paykel Healthcare's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Fisher & Paykel Healthcare's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Fisher & Paykel Healthcare's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 37% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 67% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the ten analysts watching the company. That's shaping up to be materially higher than the 11% each year growth forecast for the broader market.

In light of this, it's understandable that Fisher & Paykel Healthcare's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Fisher & Paykel Healthcare 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Fisher & Paykel Healthcare.

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

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.