Despite an already strong run, Lifetime Group Holdings, Inc. (NYSE:LTH) shares have risen sharply over the past 30 days, gaining 28%. The last 30 days bring the year-to-date gain to a remarkable 40%.
After the sharp price increase, Life Time Group Holdings, with a price-to-earnings (P/E) ratio of 43.7, may be sending very bearish signals right now, as almost half of all companies in the US have a P/E ratio of less than 17, and even P/E ratios below 10 are not uncommon. However, the P/E ratio might be quite high for a reason, and further research is needed to determine if it is justified.
The last few years have been encouraging for Life Time Group Holdings as profits have increased despite declining market results. Many seem to expect the company to continue to defy general market adversities, which has increased investors’ willingness to pay. If not, existing shareholders may be a little nervous about the viability of the share price.
Check out our latest analysis for Life Time Group Holdings
Would you like to know how analysts assess the future of Life Time Group Holdings compared to the industry? In this case, our free Report is a good starting point.
Is the growth appropriate for the high P/E ratio?
There is a fundamental assumption that a company must significantly outperform the market for P/E ratios like Life Time Group Holdings to be considered reasonable.
Looking back, last year saw the company grow earnings exceptionally by 30%. However, long-term performance has not been as strong, with EPS growth over three years overall being relatively low. Therefore, it seems to us that the company has had a mixed performance in terms of earnings growth over this period.
As for the outlook, the company is expected to grow 25% per year over the next three years, according to the 12 analysts who cover the company. The rest of the market is expected to grow at just 10% per year, which is significantly less attractive.
With this in mind, it is understandable that Life Time Group Holdings’ P/E ratio is higher than most other companies. It seems shareholders are not keen to offload something that potentially has a better future ahead of it.
What can we learn from Life Time Group Holdings’ P/E ratio?
Life Time Group Holdings’ P/E ratio is as high as it has been in the last month. Generally, we prefer to stick to using the price-to-earnings ratio to determine what the market thinks about the overall health of a company.
As we suspected, our study of analyst forecasts for Life Time Group Holdings found that its above-average earnings outlook is contributing to its high P/E ratio. At this point, investors believe that the potential for earnings deterioration is not large enough to justify a lower P/E ratio. Under these circumstances, it is difficult to imagine the share price falling much in the near future.
You should always think about the risks. A typical example: We have 1 warning signal for Life Time Group Holdings You should be aware.
it is important, that Make sure you are looking for a great company and not just the first idea that comes to mind. So take a look at the free List of interesting companies with strong recent earnings growth (and low P/E ratios).
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
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