The Price Is Right For Fortis Healthcare Limited (NSE:FORTIS)

When close to half the companies in India have price-to-earnings ratios (or "P/E's") below 33x, you may consider Fortis Healthcare Limited (NSE:FORTIS) as a stock to avoid entirely with its 62.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's inferior to most other companies of late, Fortis Healthcare has been relatively sluggish. 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.

Check out 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.

What Are Growth Metrics Telling Us About The High P/E?

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.

Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. Pleasingly, EPS has also lifted 96% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 24% each year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 20% per year, which is noticeably less attractive.

In light of this, it's understandable that Fortis Healthcare's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From 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.

As we suspected, our examination of Fortis Healthcare's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the 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.

If these risks are making you reconsider your opinion on Fortis Healthcare, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.