Is CONMED Corporation’s (NASDAQ:CNMD) PE Ratio A Signal To Buy For Investors?
CONMED Corporation (NASDAQ:CNMD) is currently trading at a trailing P/E of 31.1x, which is lower than the industry average of 33.6x. While this makes CNMD appear like a great stock to buy, you might change your mind after I explain the assumptions behind the P/E ratio. In this article, I will explain what the P/E ratio is as well as what you should look out for when using it. Check out our latest analysis for CONMED
Breaking down the P/E ratio
A common ratio used for relative valuation is the P/E ratio. 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 CNMD
Price-Earnings Ratio = Price per share ÷ Earnings per share
CNMD Price-Earnings Ratio = $61.76 ÷ $1.986 = 31.1x
The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful 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 CNMD, such as size and country of operation. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. At 31.1x, CNMD’s P/E is lower than its industry peers (33.6x). This implies that investors are undervaluing each dollar of CNMD’s earnings. As such, our analysis shows that CNMD represents an under-priced stock.
Assumptions to watch out for
While our conclusion might prompt you to buy CNMD immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to CNMD. 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 CNMD, 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 CNMD to are fairly valued by the market. If this does not hold, there is a possibility that CNMD’s P/E is lower because our peer group is overvalued by the market.
What this means for you:
If your personal research into the stock confirms what the P/E ratio is telling you, it might be a good time to add more of CNMD to your portfolio. But keep in mind that the usefulness of relative valuation depends on whether you are comfortable with making the assumptions I mentioned 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 CNMD’s future growth? Take a look at our free research report of analyst consensus for CNMD’s outlook.
Past Track Record: Has CNMD 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 CNMD’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.
