With Aster DM Healthcare Limited (NSE:ASTERDM) It Looks Like You'll Get What You Pay For

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 31x, you may consider Aster DM Healthcare Limited (NSE:ASTERDM) as a stock to avoid entirely with its 74.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Aster DM Healthcare could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Aster DM Healthcare

Want the full picture on analyst estimates for the company? Then our free report on Aster DM Healthcare will help you uncover what's on the horizon.

Is There Enough Growth For Aster DM Healthcare?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 33%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 88% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 102% over the next year. With the market only predicted to deliver 24%, the company is positioned for a stronger earnings result.

With this information, we can see why Aster DM Healthcare is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Aster DM Healthcare's P/E

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.

As we suspected, our examination of Aster DM Healthcare's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Aster DM Healthcare (1 shouldn't be ignored!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Aster DM Healthcare. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.