Healthcare · Medtech
Growth-Adjusted P/E for Devices
Forward P/E divided by organic growth: why one headline multiple means different things at 6% and 12% growth, and which growth figure to divide by.
Selborne Research · Medtech coverage: 7 guides, 6 company profiles, a primer and Excel model
Educational analysis for professional use. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
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A Headline P/E Hides the Growth It Assumes
A 28x forward P/E buys very different things at 6% organic growth and at 12%. Growth-adjusted P/E divides forward P/E by the growth rate (as a percentage), putting a slow diversified portfolio and a fast procedure-driven franchise on one axis.
Strip acquisitions from the growth input first: Boston Scientific’s reported rate ran 4.1 pp above its organic rate in FY2025, as the organic vs reported growth guide shows.
The Formula and Four Ranges
Growth-adjusted P/E = Forward P/E ÷ organic revenue growth (%)
These ranges are our own convention for a first sort; no filing publishes them. Each step up means the price assumes growth lasts longer.
| Ratio | What the price assumes | What to check |
|---|---|---|
| <2.5x | Little credit for growth | Whether the growth is a one-off |
| 2.5–4.0x | Growth near the forecast-year rate | Whether growth is steady across segments |
| 4.0–6.0x | Growth well beyond the forecast year | Recurring revenue and the margin path |
| >6.0x | Many years at the forecast rate | How far the multiple falls if growth slows |
A sector median P/E needs the same adjustment, because it blends 4.9% organic growers with 21% revenue growers. Bain found the same pattern across the sector: roughly two turns of forward EV multiple for each 100 bps of revenue growth, among medtech companies above $3B revenue (valuations as of 14 Jan 2024).
Which Growth Figure Each Company Files
| Company | Growth input, FY2025 | Notes |
|---|---|---|
| MDT | 4.9% organic | FY ended 25 Apr 2025 |
| ABT | 5.5% organic | |
| SYK | 10.3% organic | |
| EW | 10.7% CC | Constant currency (exchange-rate moves taken out); not labelled “organic” |
| BSX | 15.8% organic | Reported was 19.9% |
| ISRG | 21% total growth | No organic line filed |
Worked Example: One Multiple, Two Growth Rates
Take a fictional diversified device maker on a 28x forward P/E, growing 6% organically, then change one input at a time.
| Case | Forward P/E | Organic growth | Growth-adjusted P/E |
|---|---|---|---|
| Starting point | 28x | 6% | 28 ÷ 6 = 4.7x |
| Same ratio, faster growth | 28 × 2 = 56x | 12% | 4.7x |
| Same headline, faster growth | 28x | 12% | 28 ÷ 12 = 2.33x |
At 4.7x the starting price assumes growth well beyond the forecast year. Hold that ratio and the company growing twice as fast carries twice the headline P/E. Hold the headline instead and the ratio halves. A table of headline P/Es across growth rates compares numbers that measure different things.
Recurring Revenue Shifts the Range
Revenue that repeats from an installed base is more predictable than capital sales, so it can support a higher ratio. The adjustment below is our convention, not a filed benchmark.
| Recurring revenue share | Adjustment to the P/E of a diversified large-cap device maker |
|---|---|
| >70% | +15–25% |
| 40–70% | None |
| <40% | -10–15% |
Use it on a multiples screen only: a DCF already carries that predictability in the length of the growth runway, so adding both counts it twice. Most large device makers file no recurring share; the razor-and-blade guide shows which do.
The Screen in Four Steps
- Pull organic growth (or constant-currency or total, footnoted) from the earnings release.
- Take forward P/E on the same date, and recompute when either input changes.
- Divide, and read the result against the four ranges.
- Where the company files a recurring share, read it beside the ratio.
Medtronic at 4.9% organic and Intuitive Surgical at 21% total growth sit at opposite ends of the growth range, with Edwards Lifesciences at 10.7% CC between. One average P/E across the three would hide that spread.
A franchise DCF charges reinvestment for every point of growth, fades that growth year by year, and asks how many years of it a price pays for.
- 15 sections, installed base and pull-through to a franchise DCF, the runway a price implies and growth-adjusted P/E
- 44 pages
- a razor-blade franchise and a diversified grower
- 2 worked archetypes
- large-cap device makers on filed organic growth, margins and free cash flow
- 6-company screen
The Excel model is the primer's franchise DCF live across 11 sheets: a razor-blade franchise and a diversified grower valued over 20 years on funded free cash flow, with growth held for a runway and then faded to terminal, an operating margin path and a WACC built from the cost of equity and after-tax debt; a runway table showing how many years of growth the illustrative price pays for; a valuation summary; the installed-base build; P/E implied by the DCF value and by the price, each growth-adjusted; organic-versus-reported checks; and a sensitivity grid. Change organic growth, the runway, ROIC or the WACC and the value moves.
See what's in the Medtech Sector Primer →£25 PDF · £59 with the Excel model · £159 for all three Healthcare industries
Frequently Asked Questions
- What is growth-adjusted P/E in medtech?
- Forward P/E divided by organic revenue growth (expressed as a percentage). A company at 28x forward P/E with 6% organic growth scores 4.7x (28 ÷ 6). The ratio lets you compare franchises on different growth trajectories without treating all medtech as one multiple.
- What growth-adjusted P/E ranges do analysts use?
- No filing publishes one. For a first sort we use below 2.5x, 2.5–4.0x, 4.0–6.0x and above 6.0x, our own convention. Each step up assumes growth lasts longer, so ask what supports it: recurring revenue, a rising margin or a long runway of procedures.
- Should you use reported or organic growth in the denominator?
- Organic, or each filer's closest equivalent (EW constant-currency +10.7%, ISRG 21% total growth with no organic line). Reported growth inflated by M&A (BSX +19.9% vs 15.8% organic) understates the growth-adjusted ratio and credits bought revenue as growth the business earned.
- Why not use PEG ratio for medtech?
- No free third-party source publishes a medtech PEG median with a stated method, so this guide does not use one. Growth-adjusted P/E on filed organic growth does the same job with inputs you can check in each earnings release.
Read next
Organic vs Reported Growth in Medtech
Strip M&A before comparing medtech growth: BSX Urology +4.7% organic vs +23.1% reported, FY2025 organic growth for six peers, and why multiples follow organic growth.
Procedure Volumes: the Demand Unit
Clinical utilisation as medtech demand: EW TAVR 74% concentration, ISRG 3.15M procedures, SYK Mako cumulative volume, and revenue without a capital installed-base KPI.
GAAP vs Adjusted Operating Margin in Medtech
What device makers leave out of adjusted operating margin: amortisation from past deals, restructuring, litigation and share-based pay, how six filers define adjusted, and which margin a DCF should carry.
See it applied
These company profiles apply the concepts from this guide to real public companies.