Investors Interested In AdaptHealth Corp.'s (NASDAQ:AHCO) Earnings

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 14x, you may consider AdaptHealth Corp. (NASDAQ:AHCO) as a stock to avoid entirely with its 33.2x 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.

AdaptHealth certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for AdaptHealth

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

How Is AdaptHealth's Growth Trending?

In order to justify its P/E ratio, AdaptHealth would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 78% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 44% per annum as estimated by the nine analysts watching the company. With the market only predicted to deliver 9.2% per year, the company is positioned for a stronger earnings result.

With this information, we can see why AdaptHealth 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.

The Bottom Line On AdaptHealth's P/E

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 AdaptHealth 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.

Before you settle on your opinion, we've discovered 3 warning signs for AdaptHealth (1 is potentially serious!) 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 P/E ratio below 20x).

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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.