Investors are still paying attention to Medtronic plc (NYSE:MDT).
Medtronic plc (NYSE:MDTA price-to-earnings ratio (or “P/E”) of 23.9x may make it seem like a strong buy right now, compared to the US market where approximately half of all companies have P/E ratios under 14x. Even P/E’s lower than 8x are common. The P/E may be high for a reason, and further investigation is needed to determine if it is justified.
Although the market has seen earnings growth in recent months, Medtronic’s earnings are now in reverse, which isn’t great. It is possible that investors are speculating that poor earnings will change the market, which could explain why the P/E is so high. If the shares are not viable, existing shareholders might be anxious about their share price.
View our latest analysis for Medtronic
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Is Medtronic able to grow?
Medtronic will need to show outstanding growth that exceeds the market in order to justify its P/E ratio.
When we look at the earnings last year, it is disheartening to see that profits dropped 7.2%. The result is that earnings from three years ago fell 8.5% overall. We have to admit that earnings growth has been slow for the company over this period.
According to analysts, 14% growth should be achieved over the next three-years. However, the market’s rest is expected to grow by 9.2% annually, which is less appealing.
Medtronic’s P/E is therefore higher than the average of all other companies. This suggests that investors expect strong future growth, and will pay more to own the stock.
The Bottom Line on Medtronic’s PE
We don’t recommend reading too much into the price-to-earnings ratios in order to make investment decisions. However, it can tell a lot about how other market participants view the company.
Our analysis of Medtronic’s analyst forecasts revealed, as we suspected that Medtronic’s superior earnings outlook was contributing to its high PE. Investors feel that the risk of earnings deterioration is not significant enough to warrant a lower ratio. These conditions will not change unless they provide strong support for the share price.
The company’s balance sheets can also contain important risk factors. Many of the most important risks can be assessed through our. free balance sheet analysis for Medtronic You can do six simple checks.
Naturally You might be able find a better stock option than Medtronic.. You may also like 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 is by Simply Wall St. It is general in nature. We only provide commentary on historical data and analyst projections. Our articles are not meant to be considered financial advice. It is not a recommendation not to buy or sell any stocks and does not consider your objectives or financial situation. Our goal is to provide you with long-term, focused analysis based on fundamental data. Please note that our analysis might not include the latest announcements from price-sensitive companies or qualitative material. Simply Wall St does not hold any position in the stocks mentioned.
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