GPT Healthcare Limited (NSE:GPTHEALTH) Stock Rockets 27% As Investors Are Less Pessimistic Than Expected

GPT Healthcare Limited (NSE:GPTHEALTH) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, given around half the companies in India have price-to-earnings ratios (or "P/E's") below 24x, you may consider GPT Healthcare as a stock to potentially avoid with its 28.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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Recent times haven't been advantageous for GPT Healthcare as its earnings have been rising slower than most other companies. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for GPT Healthcare

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

How Is GPT Healthcare's Growth Trending?

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

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Still, the latest three year period was better as it's delivered a decent 17% overall rise in EPS. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 26% as estimated by the sole analyst watching the company. With the market predicted to deliver 25% growth , the company is positioned for a comparable earnings result.

With this information, we find it interesting that GPT Healthcare is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On GPT Healthcare's P/E

GPT Healthcare's P/E is getting right up there since its shares have risen strongly. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that GPT Healthcare currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for GPT Healthcare with six simple checks.

If these risks are making you reconsider your opinion on GPT 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.