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Is It Time To Sell Southside Bancshares Inc (SBSI) Based Off Its PE Ratio?

Rowena Gregory

Southside Bancshares Inc (NASDAQ:SBSI) is currently trading at a trailing P/E of 19.3x, which is higher than the industry average of 18.5x. While SBSI might seem like a stock to avoid or sell if you own it, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. In this article, 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 Southside Bancshares

Breaking down the P/E ratio

NasdaqGS:SBSI PE PEG Gauge Oct 7th 17

P/E is often used for relative valuation since earnings power is a chief 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 dollar of the company’s earnings.

P/E Calculation for SBSI

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

SBSI Price-Earnings Ratio = 36.75 ÷ 1.907 = 19.3x

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 SBSI, 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 19.3x, SBSI’s P/E is higher than its industry peers (18.5x). This implies that investors are overvaluing each dollar of SBSI’s earnings. As such, our analysis shows that SBSI represents an over-priced stock.

Assumptions to watch out for

While our conclusion might prompt you to sell your SBSI shares immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to SBSI. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared higher growth firms with SBSI, 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 SBSI to are fairly valued by the market. If this does not hold, there is a possibility that SBSI’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 SBSI, 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 SBSI, 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 Southside Bancshares 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.