Pediatrix Medical Group, Inc.'s (NYSE:MD) Earnings Are Not Doing Enough For Some Investors

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Pediatrix Medical Group, Inc. (NYSE:MD) as an attractive investment with its 9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been advantageous for Pediatrix Medical Group as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Pediatrix Medical Group

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

Is There Any Growth For Pediatrix Medical Group?

The only time you'd be truly comfortable seeing a P/E as low as Pediatrix Medical Group's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a worthy increase of 15%. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 3.2% each year as estimated by the eight analysts watching the company. Meanwhile, the broader market is forecast to expand by 13% per year, which paints a poor picture.

In light of this, it's understandable that Pediatrix Medical Group's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Pediatrix Medical Group's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Pediatrix Medical Group's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Pediatrix Medical Group (1 makes us a bit uncomfortable) you should be aware of.

If these risks are making you reconsider your opinion on Pediatrix Medical Group, 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.