Earnings Not Telling The Story For Progyny, Inc. (NASDAQ:PGNY)

By
Simply Wall St
Published
March 18, 2022
NasdaqGS:PGNY
Source: Shutterstock

Progyny, Inc.'s (NASDAQ:PGNY) price-to-earnings (or "P/E") ratio of 67.5x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 16x and even P/E's below 9x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent earnings growth for Progyny has been in line with the market. One possibility is that the P/E is high because investors think this modest earnings performance will accelerate. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Progyny

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NasdaqGS:PGNY Price Based on Past Earnings March 18th 2022
Want the full picture on analyst estimates for the company? Then our free report on Progyny will help you uncover what's on the horizon.

How Is Progyny's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 36% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 7.4% each year over the next three years. That's shaping up to be materially lower than the 11% each year growth forecast for the broader market.

In light of this, it's alarming that Progyny's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Progyny's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Progyny's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 3 warning signs for Progyny you should be aware of, and 1 of them shouldn't be ignored.

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

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