NASDAQ:ALXN) may be sending bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 19x and even P/E’s lower than 10x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it’s justified.” data-reactid=”28″>With a price-to-earnings (or “P/E”) ratio of 27x Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) may be sending bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 19x and even P/E’s lower than 10x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it’s justified.
Recent times haven’t been advantageous for Alexion Pharmaceuticals as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.
Check out our latest analysis for Alexion Pharmaceuticals ” data-reactid=”30″>Check out our latest analysis for Alexion Pharmaceuticals
free report on Alexion Pharmaceuticals.” data-reactid=”47″>If you’d like to see what analysts are forecasting going forward, you should check out our free report on Alexion Pharmaceuticals.
Does Growth Match The High P/E?
Alexion Pharmaceuticals’ P/E ratio would be typical for a company that’s expected to deliver solid growth, and importantly, perform better than the market.
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 36%. Still, the latest three year period has seen an excellent 64% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it’s been a bumpy ride, it’s still fair to say the earnings growth recently has been more than adequate for the company.
Turning to the outlook, the next three years should generate growth of 45% each year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 14% each year, which is noticeably less attractive.
In light of this, it’s understandable that Alexion Pharmaceuticals’ 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.
As we suspected, our examination of Alexion Pharmaceuticals’ analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren’t under threat. It’s hard to see the share price falling strongly in the near future under these circumstances.
2 warning signs for Alexion Pharmaceuticals you should be aware of.” data-reactid=”56″>You should always think about risks. Case in point, we’ve spotted 2 warning signs for Alexion Pharmaceuticals you should be aware of.
list of companies with a strong growth track record, trading on a P/E below 20x. ” data-reactid=”57″>Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>This article by Simply Wall St is general in nature. 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.