Subdued Growth No Barrier To Health Italia S.p.A. (BIT:HI) With Shares Advancing 35%

The Health Italia S.p.A. (BIT:HI) share price has done very well over the last month, posting an excellent gain of 35%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 16% over that time.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Health Italia's P/E ratio of 15.3x, since the median price-to-earnings (or "P/E") ratio in Italy is also close to 14x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

For example, consider that Health Italia's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Health Italia

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Health Italia will help you shine a light on its historical performance.

Is There Some Growth For Health Italia?

The only time you'd be comfortable seeing a P/E like Health Italia's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 42% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 11% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 27% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's somewhat alarming that Health Italia's P/E sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

The Final Word

Its shares have lifted substantially and now Health Italia's P/E is also back up to the market median. 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 Health Italia currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 4 warning signs for Health Italia (2 are a bit unpleasant!) that we have uncovered.

If you're unsure about the strength of Health Italia's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.