GE HealthCare Technologies Inc. (NASDAQ:GEHC) Might Not Be As Mispriced As It Looks After Plunging 29%

GE HealthCare Technologies Inc. (NASDAQ:GEHC) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 32% share price drop.

Following the heavy fall in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider GE HealthCare Technologies as an attractive investment with its 13.9x 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 limited.

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With earnings growth that's superior to most other companies of late, GE HealthCare Technologies has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for GE HealthCare Technologies

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

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

There's an inherent assumption that a company should underperform the market for P/E ratios like GE HealthCare Technologies' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 43%. Still, incredibly EPS has fallen 11% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 9.2% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 11% per annum, which is not materially different.

With this information, we find it odd that GE HealthCare Technologies is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From GE HealthCare Technologies' P/E?

GE HealthCare Technologies' recently weak share price has pulled its P/E below most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of GE HealthCare Technologies' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with GE HealthCare Technologies , and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on GE HealthCare Technologies, 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.