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Is It Time To Buy Syncona Limited (LON:SYNC) Based Off Its PE Ratio?

Syncona Limited (LSE:SYNC) is currently trading at a trailing P/E of 5.9x, which is lower than the industry average of 17.3x. While this makes SYNC appear like a great stock to buy, you might change your mind after I explain the assumptions behind the P/E ratio. 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 Syncona

Demystifying the P/E ratio

LSE:SYNC PE PEG Gauge Feb 6th 18
LSE:SYNC PE PEG Gauge Feb 6th 18

The P/E ratio is a popular ratio used in relative valuation since earnings power is a key driver of investment value. 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 pound of the company’s earnings.

P/E Calculation for SYNC

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

SYNC Price-Earnings Ratio = £2.04 ÷ £0.344 = 5.9x

The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. We want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as SYNC, such as size and country of operation. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. Since SYNC’s P/E of 5.9x is lower than its industry peers (17.3x), it means that investors are paying less than they should for each dollar of SYNC’s earnings. Therefore, according to this analysis, SYNC is an under-priced stock.

Assumptions to watch out for

Before you jump to the conclusion that SYNC is the perfect buying opportunity, it is important to realise that our conclusion rests on two assertions. The first is that our “similar companies” are actually similar to SYNC, or else the difference in P/E might be a result of other factors. For example, if you compared higher growth firms with SYNC, then its P/E would naturally be lower since investors would reward its peers’ higher growth with a higher price. The second assumption that must hold true is that the stocks we are comparing SYNC to are fairly valued by the market. If this does not hold, there is a possibility that SYNC’s P/E is lower because our peer group is overvalued by the market.


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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