Investors Appear Satisfied With Ypsomed Holding AG's (VTX:YPSN) Prospects

When close to half the companies in Switzerland have price-to-earnings ratios (or "P/E's") below 21x, you may consider Ypsomed Holding AG (VTX:YPSN) as a stock to avoid entirely with its 62.7x 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.

Ypsomed Holding certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Ypsomed Holding

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ypsomed Holding.

Is There Enough Growth For Ypsomed Holding?

In order to justify its P/E ratio, Ypsomed Holding would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 119% last year. The latest three year period has also seen an excellent 520% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 17% per annum over the next three years. With the market only predicted to deliver 12% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Ypsomed Holding's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Ypsomed Holding maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Ypsomed Holding that you should be aware of.

Of course, you might also be able to find a better stock than Ypsomed Holding. 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.