Yahoo Finance Does Syntel Inc’s (NASDAQ:SYNT) PE Ratio Signal A Buying Opportunity?
I am writing today to help inform people who are new to the stock market and want to begin learning the link between Syntel Inc (NASDAQ:SYNT)’s fundamentals and stock market performance.
Syntel Inc (NASDAQ:SYNT) is trading with a trailing P/E of 15.4x, which is lower than the industry average of 24.1x. While this makes SYNT 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. See our latest analysis for Syntel
Breaking down the P/E ratio
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 SYNT
Price-Earnings Ratio = Price per share ÷ Earnings per share
SYNT Price-Earnings Ratio = $32.01 ÷ $2.081 = 15.4x
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 SYNT, 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. SYNT’s P/E of 15.4x is lower than its industry peers (24.1x), which implies that each dollar of SYNT’s earnings is being undervalued by investors. As such, our analysis shows that SYNT represents an under-priced stock.
A few caveats
While our conclusion might prompt you to buy SYNT immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to SYNT. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you are comparing lower risk firms with SYNT, then its P/E would naturally be lower than its peers, as investors would value those with lower risk at a higher price. The second assumption that must hold true is that the stocks we are comparing SYNT to are fairly valued by the market. If this does not hold, there is a possibility that SYNT’s P/E is lower because our peer group is overvalued by the market.
What this means for you:
You may have already conducted fundamental analysis on the stock as a shareholder, so its current undervaluation could signal a good buying opportunity to increase your exposure to SYNT. Now that you understand the ins and outs of the PE metric, you should know to bear in mind its limitations before you make an investment decision. 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 urge you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for SYNT’s future growth? Take a look at our free research report of analyst consensus for SYNT’s outlook.
Past Track Record: Has SYNT 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 SYNT’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.
