The Price Is Right For Hillenbrand, Inc. (NYSE:HI)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider Hillenbrand, Inc. (NYSE:HI) as a stock to avoid entirely with its 30.4x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Recent times have been pleasing for Hillenbrand as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Hillenbrand

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

How Is Hillenbrand's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Hillenbrand's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. The longer-term trend has been no better as the company has no earnings growth to show for over the last three years either. So it seems apparent to us that the company has struggled to grow earnings meaningfully over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 66% over the next year. With the market only predicted to deliver 10%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Hillenbrand's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Hillenbrand 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Hillenbrand (1 can't be ignored) you should be aware of.

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

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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.