Getinge AB (publ)'s (STO:GETI B) Popularity With Investors Is Clear

When close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") below 21x, you may consider Getinge AB (publ) (STO:GETI B) as a stock to avoid entirely with its 36.7x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Getinge could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Getinge

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

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

There's an inherent assumption that a company should far outperform the market for P/E ratios like Getinge's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 32%. As a result, earnings from three years ago have also fallen 45% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 35% per year during the coming three years according to the eight analysts following the company. With the market only predicted to deliver 21% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Getinge is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Getinge's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Getinge maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Getinge that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.