Why Investors Shouldn't Be Surprised By HCA Healthcare, Inc.'s (NYSE:HCA) P/E
There wouldn't be many who think HCA Healthcare, Inc.'s (NYSE:HCA) price-to-earnings (or "P/E") ratio of 12.6x is worth a mention when the median P/E in the United States is similar at about 14x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
HCA Healthcare hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
Check out our latest analysis for HCA Healthcare
Want the full picture on analyst estimates for the company? Then our free report on HCA Healthcare will help you uncover what's on the horizon.
Is There Some Growth For HCA Healthcare?
The only time you'd be comfortable seeing a P/E like HCA Healthcare's is when the company's growth is tracking the market closely.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 9.0%. Even so, admirably EPS has lifted 86% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.
Looking ahead now, EPS is anticipated to climb by 8.5% each year during the coming three years according to the analysts following the company. That's shaping up to be similar to the 9.3% each year growth forecast for the broader market.
In light of this, it's understandable that HCA Healthcare's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.
The Bottom Line On HCA Healthcare's P/E
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.
As we suspected, our examination of HCA Healthcare's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.
You need to take note of risks, for example - HCA Healthcare has 3 warning signs (and 1 which is concerning) we think you should know about.
Of course, you might also be able to find a better stock than HCA Healthcare. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.
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