A Piece Of The Puzzle Missing From Fresenius Medical Care AG's (ETR:FME) Share Price

There wouldn't be many who think Fresenius Medical Care AG's (ETR:FME) price-to-earnings (or "P/E") ratio of 19.4x is worth a mention when the median P/E in Germany is similar at about 19x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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With earnings growth that's superior to most other companies of late, Fresenius Medical Care has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Fresenius Medical Care

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

What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, Fresenius Medical Care would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 24% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 18% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 28% per annum over the next three years. With the market only predicted to deliver 17% per annum, the company is positioned for a stronger earnings result.

With this information, we find it interesting that Fresenius Medical Care is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Fresenius Medical Care'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.

Our examination of Fresenius Medical Care's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Fresenius Medical Care with six simple checks.

If these risks are making you reconsider your opinion on Fresenius Medical Care, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.