NASDAQ:QDEL) may be sending very 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. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.” data-reactid=”28″>With a price-to-earnings (or “P/E”) ratio of 47.3x Quidel Corporation (NASDAQ:QDEL) may be sending very 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. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Quidel has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for Quidel ” data-reactid=”30″> Check out our latest analysis for Quidel
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Is There Enough Growth For Quidel?
In order to justify its P/E ratio, Quidel would need to produce outstanding growth well in excess of the market.
Retrospectively, the last year delivered an exceptional 111% gain to the company’s bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it’s fair to say that earnings growth has been inconsistent recently for the company.
Turning to the outlook, the next three years should generate growth of 20% each year as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 13% per annum, which is noticeably less attractive.
With this information, we can see why Quidel is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
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 Quidel 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.
1 warning sign for Quidel that you should be aware of.” data-reactid=”56″>Don’t forget that there may be other risks. For instance, we’ve identified 1 warning sign for Quidel that you should be aware of.
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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.