Optimistic Investors Push Yatharth Hospital & Trauma Care Services Limited (NSE:YATHARTH) Shares Up 26% But Growth Is Lacking

Yatharth Hospital & Trauma Care Services Limited (NSE:YATHARTH) shareholders have had their patience rewarded with a 26% share price jump in the last month. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Following the firm bounce in price, Yatharth Hospital & Trauma Care Services' price-to-earnings (or "P/E") ratio of 43.3x might make it look like a sell right now compared to the market in India, where around half of the companies have P/E ratios below 31x and even P/E's below 17x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Yatharth Hospital & Trauma Care Services certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Yatharth Hospital & Trauma Care Services

Keen to find out how analysts think Yatharth Hospital & Trauma Care Services' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Yatharth Hospital & Trauma Care Services' Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Yatharth Hospital & Trauma Care Services' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 43%. The latest three year period has also seen an excellent 293% 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.

Turning to the outlook, the next year should generate growth of 18% as estimated by the four analysts watching the company. With the market predicted to deliver 24% growth , the company is positioned for a weaker earnings result.

In light of this, it's alarming that Yatharth Hospital & Trauma Care Services' P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Yatharth Hospital & Trauma Care Services' P/E?

Yatharth Hospital & Trauma Care Services shares have received a push in the right direction, but its P/E is elevated too. 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.

We've established that Yatharth Hospital & Trauma Care Services currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very 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 Yatharth Hospital & Trauma Care Services with six simple checks.

Of course, you might also be able to find a better stock than Yatharth Hospital & Trauma Care Services. 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.