Some Confidence Is Lacking In GE HealthCare Technologies Inc.'s (NASDAQ:GEHC) P/E

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 15x, you may consider GE HealthCare Technologies Inc. (NASDAQ:GEHC) as a stock to potentially avoid with its 19.7x 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 as high as it is.

It looks like earnings growth has deserted GE HealthCare Technologies recently, which is not something to boast about. One possibility is that the P/E is high because investors think the benign earnings growth will improve to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for GE HealthCare Technologies

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on GE HealthCare Technologies will help you shine a light on its historical performance.

How Is GE HealthCare Technologies' Growth Trending?

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

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. That's essentially a continuation of what we've seen over the last three years, as its EPS growth has been virtually non-existent for that entire period. So it seems apparent to us that the company has struggled to grow earnings meaningfully over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 4.5% shows it's noticeably less attractive on an annualised basis.

In light of this, it's alarming that GE HealthCare Technologies' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On GE HealthCare Technologies' P/E

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 revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for GE HealthCare Technologies that you should be aware of.

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.