Tenet Healthcare Corporation's (NYSE:THC) Shareholders Might Be Looking For Exit

There wouldn't be many who think Tenet Healthcare Corporation's (NYSE:THC) price-to-earnings (or "P/E") ratio of 16.1x is worth a mention when the median P/E in the United States is similar at about 17x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Tenet Healthcare has been doing quite well of late. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Tenet Healthcare

Want the full picture on analyst estimates for the company? Then our free report on Tenet Healthcare will help you uncover what's on the horizon.

How Is Tenet Healthcare's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Tenet Healthcare's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 57%. The latest three year period has also seen an excellent 62% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 4.9% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 11% per year, which is noticeably more attractive.

In light of this, it's curious that Tenet Healthcare's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Key Takeaway

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.

We've established that Tenet Healthcare currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Tenet Healthcare (2 are potentially serious!) that you should be aware of before investing here.

You might be able to find a better investment than Tenet Healthcare. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.