Stock Analysis

Healthia Limited (ASX:HLA) Stocks Shoot Up 30% But Its P/E Still Looks Reasonable

ASX:HLA
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Healthia Limited (ASX:HLA) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. The last month tops off a massive increase of 110% in the last year.

Since its price has surged higher, given close to half the companies in Australia have price-to-earnings ratios (or "P/E's") below 18x, you may consider Healthia as a stock to avoid entirely with its 38.5x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Healthia as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Healthia

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ASX:HLA Price Based on Past Earnings September 17th 2021
Keen to find out how analysts think Healthia's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Healthia's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Healthia's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 52% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 107% over the next year. That's shaping up to be materially higher than the 16% growth forecast for the broader market.

In light of this, it's understandable that Healthia'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 Bottom Line On Healthia's P/E

Shares in Healthia have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Healthia's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Healthia that you need to be mindful of.

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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