A Piece Of The Puzzle Missing From Promisia Healthcare Limited's (NZSE:PHL) 37% Share Price Climb

The Promisia Healthcare Limited (NZSE:PHL) share price has done very well over the last month, posting an excellent gain of 37%. Unfortunately, despite the strong performance over the last month, the full year gain of 4.0% isn't as attractive.

Even after such a large jump in price, given about half the companies in New Zealand have price-to-earnings ratios (or "P/E's") above 20x, you may still consider Promisia Healthcare as a highly attractive investment with its 4.2x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Promisia Healthcare certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Promisia Healthcare

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

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

Promisia Healthcare's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 482% last year. Pleasingly, EPS has also lifted 164% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

With this information, we find it odd that Promisia Healthcare is trading at a P/E lower than the market. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Bottom Line On Promisia Healthcare's P/E

Promisia Healthcare's recent share price jump still sees its P/E sitting firmly flat on the ground. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Promisia Healthcare currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

You need to take note of risks, for example - Promisia Healthcare has 5 warning signs (and 1 which is significant) we think you should know about.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.