Surgical Science Sweden AB (publ) (STO:SUS) Shares Slammed 33% But Getting In Cheap Might Be Difficult Regardless

Surgical Science Sweden AB (publ) (STO:SUS) shares have had a horrible month, losing 33% after a relatively good period beforehand. Indeed, the recent drop has reduced its annual gain to a relatively sedate 2.5% over the last twelve months.

In spite of the heavy fall in price, Surgical Science Sweden's price-to-earnings (or "P/E") ratio of 68.9x might still make it look like a strong sell right now compared to the market in Sweden, where around half of the companies have P/E ratios below 17x and even P/E's below 9x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Surgical Science Sweden certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See 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.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Surgical Science Sweden's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 335%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 35% per annum during the coming three years according to the twin analysts following the company. That's shaping up to be materially higher than the 17% per year growth forecast for the broader market.

In light of this, it's understandable that Surgical Science Sweden's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Even after such a strong price drop, Surgical Science Sweden's P/E still exceeds the rest of the market significantly. 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.

As we suspected, our examination of Surgical Science Sweden's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Surgical Science Sweden, and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Surgical Science Sweden. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.