Investors Still Waiting For A Pull Back In Siemens Healthineers AG (ETR:SHL)

When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") below 17x, you may consider Siemens Healthineers AG (ETR:SHL) as a stock to avoid entirely with its 32.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Siemens Healthineers certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Siemens Healthineers

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

Is There Enough Growth For Siemens Healthineers?

Siemens Healthineers' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 22% gain to the company's bottom line. EPS has also lifted 9.0% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 22% per year over the next three years. That's shaping up to be materially higher than the 14% each year growth forecast for the broader market.

In light of this, it's understandable that Siemens Healthineers' 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 Bottom Line On Siemens Healthineers' 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.

As we suspected, our examination of Siemens Healthineers' 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Siemens Healthineers (of which 1 is a bit unpleasant!) you should know about.

If you're unsure about the strength of Siemens Healthineers' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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