Shareholders Should Be Pleased With Organogenesis Holdings Inc.'s (NASDAQ:ORGO) Price

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider Organogenesis Holdings Inc. (NASDAQ:ORGO) as a stock to avoid entirely with its 63x 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.

Organogenesis Holdings has been struggling lately as its earnings have declined faster 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.

See our latest analysis for Organogenesis Holdings

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

Is There Enough Growth For Organogenesis Holdings?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 68%. The last three years don't look nice either as the company has shrunk EPS by 77% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 52% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 11% each year, which is noticeably less attractive.

In light of this, it's understandable that Organogenesis Holdings' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Organogenesis Holdings maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Organogenesis Holdings that you need to be mindful of.

Of course, you might also be able to find a better stock than Organogenesis Holdings. 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.