A Piece Of The Puzzle Missing From Harmony Biosciences Holdings, Inc.'s (NASDAQ:HRMY) Share Price

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) as an attractive investment with its 10.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

With earnings growth that's superior to most other companies of late, Harmony Biosciences Holdings has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Harmony Biosciences Holdings

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

Is There Any Growth For Harmony Biosciences Holdings?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 59% last year. The latest three year period has also seen an excellent 217% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 21% per year as estimated by the eleven analysts watching the company. With the market only predicted to deliver 11% per year, the company is positioned for a stronger earnings result.

With this information, we find it odd that Harmony Biosciences Holdings is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Harmony Biosciences Holdings' P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Harmony Biosciences Holdings currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Harmony Biosciences Holdings with six simple checks on some of these key factors.

You might be able to find a better investment than Harmony Biosciences Holdings. 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.