Thorne HealthTech, Inc.'s (NASDAQ:THRN) Shares May Have Run Too Fast Too Soon
With a median price-to-earnings (or "P/E") ratio of close to 15x in the United States, you could be forgiven for feeling indifferent about Thorne HealthTech, Inc.'s (NASDAQ:THRN) P/E ratio of 15.8x. 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.
Recent times have been quite advantageous for Thorne HealthTech as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. 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 Thorne HealthTech
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Thorne HealthTech will help you shine a light on its historical performance.
How Is Thorne HealthTech's Growth Trending?
The only time you'd be comfortable seeing a P/E like Thorne HealthTech's is when the company's growth is tracking the market closely.
Taking a look back first, we see that the company grew earnings per share by an impressive 118% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 5.0% shows it's noticeably less attractive on an annualised basis.
In light of this, it's curious that Thorne HealthTech's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.
The Key Takeaway
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 Thorne HealthTech currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
It is also worth noting that we have found 1 warning sign for Thorne HealthTech 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.
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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.
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