Surgical Science Sweden AB (publ) (STO:SUS) Might Not Be As Mispriced As It Looks After Plunging 66%

Surgical Science Sweden AB (publ) (STO:SUS) shareholders that were waiting for something to happen have been dealt a blow with a 66% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 80% loss during that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Surgical Science Sweden's P/E ratio of 22x, since the median price-to-earnings (or "P/E") ratio in Sweden is also close to 22x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Surgical Science Sweden could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Check out our latest analysis for Surgical Science Sweden

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Surgical Science Sweden.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Surgical Science Sweden's is when the company's growth is tracking the market closely.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 64%. This means it has also seen a slide in earnings over the longer-term as EPS is down 50% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 54% per year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 20% each year, which is noticeably less attractive.

In light of this, it's curious that Surgical Science Sweden's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Surgical Science Sweden's P/E?

With its share price falling into a hole, the P/E for Surgical Science Sweden looks quite average now. 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.

Our examination of Surgical Science Sweden's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for Surgical Science Sweden (1 is concerning!) that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.