Fresenius Medical Care AG's (ETR:FME) 29% Jump Shows Its Popularity With Investors

Fresenius Medical Care AG (ETR:FME) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 36%.

Since its price has surged higher, Fresenius Medical Care may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 25.5x, since almost half of all companies in Germany have P/E ratios under 19x and even P/E's lower than 11x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

We check all companies for important risks. See what we found for Fresenius Medical Care in our free report.

Fresenius Medical Care 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Fresenius Medical Care

Want the full picture on analyst estimates for the company? Then our free report on Fresenius Medical Care will help you uncover what's on the horizon.

Does Growth Match The High P/E?

Fresenius Medical Care's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 28% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 30% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 29% per annum over the next three years. With the market only predicted to deliver 17% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Fresenius Medical Care'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.

What We Can Learn From Fresenius Medical Care's P/E?

Fresenius Medical Care's P/E is getting right up there since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Fresenius Medical Care 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. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a 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.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.