When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 14x, you may consider DocGo Inc. (NASDAQ:DCGO) as a stock to avoid entirely with its 24.7x P/E ratio. However, the P/E might be quite high 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, DocGo has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
See our latest analysis for DocGo
Keen to find out how analysts think DocGo's future stacks up against the industry? In that case, our free report is a great place to start.
Does Growth Match The High P/E?
In order to justify its P/E ratio, DocGo would need to produce outstanding growth well in excess of the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 16% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 18% per year over the next three years. With the market only predicted to deliver 9.8% each year, the company is positioned for a stronger earnings result.
In light of this, it's understandable that DocGo's 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.
What We Can Learn From DocGo's P/E?
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 DocGo's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for DocGo that you should be aware of.
Of course, you might also be able to find a better stock than DocGo. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.