Little Excitement Around Ryman Healthcare Limited's (NZSE:RYM) Earnings

Ryman Healthcare Limited's (NZSE:RYM) price-to-earnings (or "P/E") ratio of 10.9x might make it look like a buy right now compared to the market in New Zealand, where around half of the companies have P/E ratios above 16x and even P/E's above 28x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Ryman Healthcare has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Ryman Healthcare

Want the full picture on analyst estimates for the company? Then our free report on Ryman Healthcare will help you uncover what's on the horizon.

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

There's an inherent assumption that a company should underperform the market for P/E ratios like Ryman Healthcare's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 66% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 37% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 16% per year as estimated by the five analysts watching the company. With the market predicted to deliver 21% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why Ryman Healthcare is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Ryman Healthcare's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Ryman Healthcare maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Ryman Healthcare (1 is a bit concerning!) that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.