Astrana Health, Inc.'s (NASDAQ:ASTH) 33% Cheaper Price Remains In Tune With Earnings

Astrana Health, Inc. (NASDAQ:ASTH) shares have had a horrible month, losing 33% after a relatively good period beforehand. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 20%.

Although its price has dipped substantially, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may still consider Astrana Health as a stock to avoid entirely with its 32.1x 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.

With earnings growth that's superior to most other companies of late, Astrana Health has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Astrana Health

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

How Is Astrana Health's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 37%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 24% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 20% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 11% each year, which is noticeably less attractive.

With this information, we can see why Astrana Health 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 Astrana Health's P/E

Even after such a strong price drop, Astrana Health's P/E still exceeds the rest of the market significantly. 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 Astrana Health 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Astrana Health that you should be aware of.

If these risks are making you reconsider your opinion on Astrana Health, 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.