Yahoo Finance Should You Buy SES SA. (BDL:SESGL) At This PE Ratio?
SES SA. (BDL:SESGL) is currently trading at a trailing P/E of 11.9x, which is lower than the industry average of 16.5x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind. In this article, I will deconstruct the P/E ratio and highlight what you need to be careful of when using the P/E ratio. See our latest analysis for SES
What you need to know about the P/E ratio
The P/E ratio is one of many ratios used in 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.
P/E Calculation for SESGL
Price-Earnings Ratio = Price per share ÷ Earnings per share
SESGL Price-Earnings Ratio = €13.63 ÷ €1.143 = 11.9x
The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to SESGL, such as company lifetime and products sold. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. Since SESGL’s P/E of 11.9x is lower than its industry peers (16.5x), it means that investors are paying less than they should for each dollar of SESGL’s earnings. As such, our analysis shows that SESGL represents an under-priced stock.
Assumptions to be aware of
While our conclusion might prompt you to buy SESGL immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to SESGL. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared lower risk firms with SESGL, then investors would naturally value it at a lower price since it is a riskier investment. The second assumption that must hold true is that the stocks we are comparing SESGL to are fairly valued by the market. If this is violated, SESGL’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 SESGL, the undervaluation of the stock may mean it is a good time to top up on 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 highly recommend you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for SESGL’s future growth? Take a look at our free research report of analyst consensus for SESGL’s outlook.
Past Track Record: Has SESGL 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 SESGL’s historicals for more clarity.
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.
