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Should You Sell Surgical Innovations Group plc (LON:SUN) At This PE Ratio?

I am writing today to help inform people who are new to the stock market and want to better understand how you can grow your money by investing in Surgical Innovations Group plc (LON:SUN).

Surgical Innovations Group plc (LON:SUN) is currently trading at a trailing P/E of 29.1x, which is higher than the industry average of 28.1x. Although some investors may jump to the conclusion that you should avoid the stock or sell if you own it, understanding the assumptions behind the P/E ratio might change your mind. Today, I will explain what the P/E ratio is as well as what you should look out for when using it. View out our latest analysis for Surgical Innovations Group

Demystifying the P/E ratio

AIM:SUN PE PEG Gauge June 22nd 18
AIM:SUN PE PEG Gauge June 22nd 18

P/E is a popular ratio used for relative valuation. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.

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P/E Calculation for SUN

Price-Earnings Ratio = Price per share ÷ Earnings per share

SUN Price-Earnings Ratio = £0.029 ÷ £0.000981 = 29.1x

On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. We want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as SUN, such as size and country of operation. A common peer group is companies that exist in the same industry, which is what I use. SUN’s P/E of 29.1x is higher than its industry peers (28.1x), which implies that each dollar of SUN’s earnings is being overvalued by investors. As such, our analysis shows that SUN represents an over-priced stock.

Assumptions to be aware of

However, before you rush out to sell your SUN shares, it is important to note that this conclusion is based on two key assumptions. Firstly, our peer group contains companies that are similar to SUN. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared higher growth firms with SUN, then its P/E would naturally be lower since investors would reward its peers’ higher growth with a higher price. The second assumption that must hold true is that the stocks we are comparing SUN to are fairly valued by the market. If this is violated, SUN’s P/E may be lower than its peers as they are actually overvalued by investors.

What this means for you:

Since you may have already conducted your due diligence on SUN, the overvaluation of the stock may mean it is a good time to reduce your current holdings. But at the end of the day, keep in mind that relative valuation relies heavily on critical assumptions I’ve outlined above. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for SUN’s future growth? Take a look at our free research report of analyst consensus for SUN’s outlook.

  2. Past Track Record: Has SUN been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of SUN’s historicals for more clarity.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.