What You Can Learn From Surgical Science Sweden AB (publ)'s (STO:SUS) P/E After Its 32% Share Price Crash

Explore Surgical Science Sweden's Fair Values from the Community and select yours

The Surgical Science Sweden AB (publ) (STO:SUS) share price has fared very poorly over the last month, falling by a substantial 32%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 25% in that time.

In spite of the heavy fall in price, given close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") below 23x, you may still consider Surgical Science Sweden as a stock to avoid entirely with its 36.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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Surgical Science Sweden hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Surgical Science Sweden

Keen to find out how analysts think Surgical Science Sweden's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Surgical Science Sweden's Growth Trending?

In order to justify its P/E ratio, Surgical Science Sweden would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 32% decrease to the company's bottom line. Regardless, EPS has managed to lift by a handy 25% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 47% each year over the next three years. With the market only predicted to deliver 17% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Surgical Science Sweden is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Surgical Science Sweden's P/E

A significant share price dive has done very little to deflate Surgical Science Sweden's very lofty P/E. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Surgical Science Sweden 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Surgical Science Sweden, and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.