Shareholders Should Be Pleased With Fortis Healthcare Limited's (NSE:FORTIS) Price

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 29x, you may consider Fortis Healthcare Limited (NSE:FORTIS) as a stock to avoid entirely with its 57.8x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Fortis Healthcare could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Fortis Healthcare

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

How Is Fortis Healthcare's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Fortis Healthcare's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.0% last year. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 24% each year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 19% per year growth forecast for the broader market.

With this information, we can see why Fortis Healthcare 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 Fortis Healthcare's 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.

We've established that Fortis Healthcare 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.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Fortis Healthcare with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than Fortis Healthcare. 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.