Investors Don't See Light At End Of QuidelOrtho Corporation's (NASDAQ:QDEL) Tunnel




  • In Business
  • 2022-07-04 19:57:54Z
  • By Simply Wall St.
 

With a price-to-earnings (or "P/E") ratio of 6.5x QuidelOrtho Corporation (NASDAQ:QDEL) 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 15x and even P/E's higher than 30x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times haven't been advantageous for QuidelOrtho as its earnings have been rising slower than most other companies. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

View our latest analysis for QuidelOrtho

Keen to find out how analysts think QuidelOrtho's future stacks up against the industry? In that case, our free report is a great place to start.

How Is QuidelOrtho's Growth Trending?

In order to justify its P/E ratio, QuidelOrtho would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a decent 6.9% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 804% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 43% per year as estimated by the three 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 QuidelOrtho's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

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 QuidelOrtho maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. 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.

It is also worth noting that we have found 3 warning signs for QuidelOrtho that you need to take into consideration.

If these risks are making you reconsider your opinion on QuidelOrtho, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.

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