Why We're Not Concerned About Boston Scientific Corporation's (NYSE:BSX) Share Price

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider Boston Scientific Corporation (NYSE:BSX) as a stock to avoid entirely with its 64.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Boston Scientific certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Boston Scientific

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Boston Scientific.

How Is Boston Scientific's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 105%. The strong recent performance means it was also able to grow EPS by 749% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 23% per annum over the next three years. That's shaping up to be materially higher than the 9.9% per annum growth forecast for the broader market.

With this information, we can see why Boston Scientific 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 Final Word

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.

We've established that Boston Scientific maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Boston Scientific that you need to be mindful of.

If you're unsure about the strength of Boston Scientific's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.