CHC Healthcare Group (TWSE:4164) Looks Just Right With A 33% Price Jump

Despite an already strong run, CHC Healthcare Group (TWSE:4164) shares have been powering on, with a gain of 33% in the last thirty days. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, CHC Healthcare Group's price-to-earnings (or "P/E") ratio of 29x might make it look like a sell right now compared to the market in Taiwan, where around half of the companies have P/E ratios below 21x and even P/E's below 15x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times haven't been advantageous for CHC Healthcare Group as its earnings have been rising slower than most other companies. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for CHC Healthcare Group

Keen to find out how analysts think CHC Healthcare Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For CHC Healthcare Group?

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

If we review the last year of earnings growth, the company posted a worthy increase of 5.3%. However, due to its less than impressive performance prior to this period, EPS growth is practically non-existent over the last three years overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 35% over the next year. Meanwhile, the rest of the market is forecast to only expand by 25%, which is noticeably less attractive.

With this information, we can see why CHC Healthcare Group is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

CHC Healthcare Group shares have received a push in the right direction, but its P/E is elevated too. 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.

As we suspected, our examination of CHC Healthcare Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware CHC Healthcare Group is showing 2 warning signs in our investment analysis, you should know about.

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.