When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider LeMaitre Vascular, Inc. (NASDAQ:LMAT) as a stock to avoid entirely with its 50.5x 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 its earnings growth in positive territory compared to the declining earnings of most other companies, LeMaitre Vascular has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors' willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is LeMaitre Vascular's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like LeMaitre Vascular's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 48% gain to the company's bottom line. As a result, it also grew EPS by 19% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 13% each year during the coming three years according to the nine analysts following the company. That's shaping up to be materially higher than the 10% each year growth forecast for the broader market.

With this information, we can see why LeMaitre Vascular is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On LeMaitre Vascular's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that LeMaitre Vascular maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for LeMaitre Vascular with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than LeMaitre Vascular. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.