Ypsomed Holding AG's (VTX:YPSN) Share Price Is Still Matching Investor Opinion Despite 25% Slump

The Ypsomed Holding AG (VTX:YPSN) share price has fared very poorly over the last month, falling by a substantial 25%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 25% share price drop.

In spite of the heavy fall in price, given close to half the companies in Switzerland have price-to-earnings ratios (or "P/E's") below 19x, you may still consider Ypsomed Holding as a stock to avoid entirely with its 48.3x 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.

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Recent times have been advantageous for Ypsomed Holding as its earnings have been rising faster 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.

Check out 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 managed to grow earnings per share by a handy 12% last year. Pleasingly, EPS has also lifted 251% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 33% per annum over the next three years. That's shaping up to be materially higher than the 11% per year growth forecast for the broader market.

With this information, we can see why Ypsomed Holding 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 Final Word

A significant share price dive has done very little to deflate Ypsomed Holding's very lofty P/E. 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.

As we suspected, our examination of Ypsomed Holding'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. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for Ypsomed Holding (1 is potentially serious!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.