SYK’s forward valuation multiple
As of January 9, Stryker International (SYK) was trading at a PE ratio of 34.3x and 12-month forward PE (price-to-earnings) ratio of 22.4x. So the company’s earnings are expected to grow over the next year. A week ago, Stryker’s forward PE estimate was 21.7x. Stryker’s increasing valuation reflects its strong investor sentiments due to several key developments, including strong 3Q17 results. However, the company’s 12-month forward PEG (price-to-earnings-growth) ratio stands at 2.1x.
The forward PE ratio is calculated by dividing the current stock price of a company by its next 12-month earnings estimate. It reflects a company’s growth potential. Generally, a higher forward PE compared to the company’s peers is reported by high growth companies. However, it might reflect stock overvaluation. The forward PEG ratio provides a better picture of the valuation of a particular stock. The lower the PEG ratio, the more the stock is undervalued.
As of January 9, Stryker’s peers Zimmer Biomet Holdings (ZBH), Becton Dickinson (BDX), and Abbott Laboratories (ABT) have forward PE ratios of 15.1x, 19.8x, and 20.6x, respectively. The forward PEG ratios for these companies are 5.1x, 1.3x, and 1.6x, respectively. So Stryker is currently trading at better valuations than its peers.
Stryker and its peers Zimmer Biomet Holdings, Becton Dickinson, and Abbott Laboratories comprise approximately 10.3%, 3.3%, and 9.4%, respectively, of the total holdings in the iShares US Medical Devices (IHI).
Stryker’s fundamentals and growth expectations
Stryker registered strong growth with its 3Q17 earnings results—which it reported on October 26—despite certain Sage product recalls and natural disasters impacting the company’s sales. This growth reflects the company’s strong fundamentals and operational efficiencies. The company has been growing through strategic tuck-in acquisitions over the recent quarters. During the company’s recent quarter, Stryker has undertaken some key acquisitions—including Vexim and Entellus Medical. For more details, check out Recent Updates on Stryker: Vexim and Dividends.
The company announced strong sales and earnings results during its preliminary 4Q17 and full fiscal 2017 earnings release on January 9. We discussed the details in the previous articles in this series.