ConvaTec Group PLC's (LON:CTEC) Earnings Haven't Escaped The Attention Of Investors

With a price-to-earnings (or "P/E") ratio of 28.4x ConvaTec Group PLC (LON:CTEC) may be sending very bearish signals at the moment, given that almost half of all companies in the United Kingdom have P/E ratios under 16x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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ConvaTec Group 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.

See our latest analysis for ConvaTec Group

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

How Is ConvaTec Group's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like ConvaTec Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 41% gain to the company's bottom line. The latest three year period has also seen an excellent 175% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 21% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 18% per annum, which is noticeably less attractive.

In light of this, it's understandable that ConvaTec Group'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 Bottom Line On ConvaTec Group's P/E

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 ConvaTec Group 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for ConvaTec Group that you should be aware of.

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.