Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) Not Flying Under The Radar

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) as a stock to avoid entirely with its 57.2x 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 so lofty.

Recent times haven't been advantageous for Ligand Pharmaceuticals as its earnings have been falling quicker than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Ligand Pharmaceuticals

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

Is There Enough Growth For Ligand Pharmaceuticals?

In order to justify its P/E ratio, Ligand Pharmaceuticals would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 10% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 58% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 10% growth forecast for the broader market.

In light of this, it's understandable that Ligand Pharmaceuticals' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Ligand Pharmaceuticals' 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 Ligand Pharmaceuticals' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Ligand Pharmaceuticals has 2 warning signs we think you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.