Market Participants Recognise Fresenius Medical Care AG's (ETR:FME) Earnings

When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") below 16x, you may consider Fresenius Medical Care AG (ETR:FME) as a stock to potentially avoid with its 23.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Fresenius Medical Care has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Fresenius Medical Care

Keen to find out how analysts think Fresenius Medical Care's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Fresenius Medical Care?

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, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 41%. As a result, earnings from three years ago have also fallen 66% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 40% per annum as estimated by the analysts watching the company. With the market only predicted to deliver 13% per annum, 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. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Fresenius Medical Care'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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Fresenius Medical Care you should be aware of.

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.

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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.