UnitedHealth Group Incorporated's (NYSE:UNH) Popularity With Investors Is Clear

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider UnitedHealth Group Incorporated (NYSE:UNH) as a stock to avoid entirely with its 37.9x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for UnitedHealth Group as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for UnitedHealth Group

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

Is There Enough Growth For UnitedHealth Group?

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

Retrospectively, the last year delivered a frustrating 32% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 33% each year during the coming three years according to the analysts following the company. With the market only predicted to deliver 10% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why UnitedHealth Group 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 Bottom Line On UnitedHealth Group'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.

We've established that UnitedHealth Group 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. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 5 warning signs for UnitedHealth Group (of which 1 is significant!) you should know about.

Of course, you might also be able to find a better stock than UnitedHealth Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.