Spire Healthcare Group plc's (LON:SPI) P/E Still Appears To Be Reasonable

With a price-to-earnings (or "P/E") ratio of 36.9x Spire Healthcare Group plc (LON:SPI) 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 17x and even P/E's lower than 10x are not unusual. 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.

Recent times have been advantageous for Spire Healthcare Group as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Spire Healthcare Group

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

How Is Spire Healthcare Group's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 217%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 47% each year during the coming three years according to the six analysts following the company. With the market only predicted to deliver 15% each year, the company is positioned for a stronger earnings result.

With this information, we can see why Spire Healthcare Group is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Spire Healthcare Group's P/E

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 Spire Healthcare Group'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.

It is also worth noting that we have found 1 warning sign for Spire Healthcare Group that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.