text: Here's How P/E Ratios Can Help Us Understand Baxter International Inc. (NYSE:BAX) – Simply Wall St News
  Here's How P/E Ratios Can Help Us Understand Baxter International Inc. (NYSE:BAX)
  This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll apply a basic P/E ratio analysis to Baxter International Inc.'s (NYSE:BAX), to help you decide if the stock is worth further research. Looking at earnings over the last twelve months, Baxter International has a P/E ratio of 24.35. That corresponds to an earnings yield of approximately 4.1%.
  How Do I Calculate Baxter International's Price To Earnings Ratio?
  P/E of 24.35 = $74.33 ÷ $3.05 (Based on the year to December 2018.)
  Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. Earnings growth means that in the future the 'E' will be higher. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.
  Baxter International's earnings made like a rocket, taking off 129% last year. The cherry on top is that the five year growth rate was an impressive 39% per year. So I'd be surprised if the P/E ratio was not above average.
  How Does Baxter International's P/E Ratio Compare To Its Peers?
  We can get an indication of market expectations by looking at the P/E ratio. We can see in the image below that the average P/E (38.7) for companies in the medical equipment industry is higher than Baxter International's P/E.
  NYSE:BAX Price Estimation Relative to Market, April 19th 2019
  Its relatively low P/E ratio indicates that Baxter International shareholders think it will struggle to do as well as other companies in its industry classification. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
  Baxter International's Balance Sheet
  Net debt totals just 4.3% of Baxter International's market cap. The market might award it a higher P/E ratio if it had net cash, but its unlikely this low level of net borrowing is having a big impact on the P/E multiple.
  The Bottom Line On Baxter International's P/E Ratio
  Baxter International trades on a P/E ratio of 24.4, which is above the US market average of 18.2. Its debt levels do not imperil its balance sheet and its EPS growth is very healthy indeed. So on this analysis a high P/E ratio seems reasonable.
  You might be able to find a better buy than Baxter International. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).