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Should You Be Tempted To Sell Citizens Inc (CIA) At Its Current Price?

Citizens Inc (NYSE:CIA) is currently trading at a trailing P/E of 71.6x, which is higher than the industry average of 15.7x. Although some investors may jump to the conclusion that you should avoid the stock or sell if you own it, understanding the assumptions behind the P/E ratio might change your mind. Today, I will break down what the P/E ratio is, how to interpret it and what to watch out for. Check out our latest analysis for Citizens

Breaking down the P/E ratio

NYSE:CIA PE PEG Gauge Oct 1st 17
NYSE:CIA PE PEG Gauge Oct 1st 17

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 CIA

Price-Earnings Ratio = Price per share ÷ Earnings per share

CIA Price-Earnings Ratio = 7.87 ÷ 0.11 = 71.6x

The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful when you compare it with other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to CIA, such as company lifetime and products sold. A common peer group is companies that exist in the same industry, which is what I use. Since CIA's P/E of 71.6x is higher than its industry peers (15.7x), it means that investors are paying more than they should for each dollar of CIA's earnings. Therefore, according to this analysis, CIA is an over-priced stock.

A few caveats

However, before you rush out to sell your CIA shares, it is important to note that this conclusion is based on two key assumptions. The first is that our “similar companies” are actually similar to CIA, or else the difference in P/E might be a result of other factors. For example, if you compared lower risk firms with CIA, 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 CIA to are fairly valued by the market. If this does not hold, there is a possibility that CIA’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

Are you a shareholder? Since you may have already conducted your due diligence on CIA, the overvaluation of the stock may mean it is a good time to reduce 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.

Are you a potential investor? If you are considering investing in CIA, looking at the PE ratio on its own is not enough to make a well-informed decision. You will benefit from looking at additional analysis and considering its intrinsic valuation along with other relative valuation metrics like PEG and EV/Sales.

PE is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Citizens for a more in-depth analysis of the stock to help you make a well-informed investment decision. Since we know a limitation of PE is it doesn't properly account for growth, you can use our free platform to see my list of stocks with a high growth potential and see if their PE is still reasonable.


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.

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