The Market Doesn't Like What It Sees From Tenet Healthcare Corporation's (NYSE:THC) Earnings Yet

Simply Wall St.
15 Mar

With a price-to-earnings (or "P/E") ratio of 3.6x Tenet Healthcare Corporation (NYSE:THC) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 32x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Tenet Healthcare has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Tenet Healthcare

NYSE:THC Price to Earnings Ratio vs Industry March 15th 2025
Want the full picture on analyst estimates for the company? Then our free report on Tenet Healthcare will help you uncover what's on the horizon.

Is There Any Growth For Tenet Healthcare?

The only time you'd be truly comfortable seeing a P/E as depressed as Tenet Healthcare's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 449% last year. The strong recent performance means it was also able to grow EPS by 293% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 24% per year as estimated by the analysts watching the company. With the market predicted to deliver 11% growth each year, that's a disappointing outcome.

In light of this, it's understandable that Tenet Healthcare's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Tenet Healthcare's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Tenet Healthcare's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Tenet Healthcare (of which 2 are a bit unpleasant!) you should know about.

If you're unsure about the strength of Tenet Healthcare's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Valuation is complex, but we're here to simplify it.

Discover if Tenet Healthcare might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

Access Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Most Discussed

  1. 1
     
     
     
     
  2. 2
     
     
     
     
  3. 3
     
     
     
     
  4. 4
     
     
     
     
  5. 5
     
     
     
     
  6. 6
     
     
     
     
  7. 7
     
     
     
     
  8. 8
     
     
     
     
  9. 9
     
     
     
     
  10. 10