There's No Escaping Tenet Healthcare Corporation's (NYSE:THC) Muted Earnings Despite A 26% Share Price Rise

Tenet Healthcare Corporation (NYSE:THC) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Tenet Healthcare may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.7x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 32x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Tenet Healthcare could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Tenet Healthcare

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

How Is Tenet Healthcare's Growth Trending?

In order to justify its P/E ratio, Tenet Healthcare would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 41% decrease to the company's bottom line. Even so, admirably EPS has lifted 75% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 1.7% each year over the next three years. That's shaping up to be materially lower than the 10% per year growth forecast for the broader market.

In light of this, it's understandable that Tenet Healthcare's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Despite Tenet Healthcare's shares building up a head of steam, its P/E still lags most other companies. 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 Tenet Healthcare maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Tenet Healthcare (1 doesn't sit too well with us!) that you need to be mindful of.

If you're unsure about the strength of Tenet Healthcare'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.