• Submitted By: meg1984
  • Date Submitted: 12/07/2008 6:02 PM
  • Category: Business
  • Words: 1119
  • Page: 5
  • Views: 399

3. Evaluation of whether Steris is a good stock to own:

When evaluating whether a stock is a good buy there are many things that must be considered.

To begin that evaluation, the market value of the company can be determined by looking at the P/E ratio, Price/cash flow ratio, and Market/book ratios. One of the primary analyses that can be done includes P/E ratio. The price /earnings ratio is calculated by dividing price per share over earnings per share. P/E ratios are higher for firms with strong growth prospects, but they are also lower for riskier firms. Because Steris' P/E ratio of 16.7 is lower than the average 17.10 for the sector, this suggests that the company is slightly more risky as the average company, has a lower growth prospect, or both.

Price/Cash flow ratio for Steris is 10. In price/cash flow ratio cash flow is defined as net income plus depreciation and amortization and price per share is divided onto cash flow per share. Once again Steris' price/cash flow ratio of 10 is below the industry average of 11.5, again suggesting that the growth prospects are below average, its risk is above average, or both.

Beta is also used for evaluating stock risk. In Steris' case the beta is 0.79 while the industry average beta is 0.63. This further suggests that Steris is slightly riskier than the industry average.

In continuing the analysis, market/book ratios can also be looked at. The market/book ratio or M/B is determined by dividing the market price per share by the book value per share. In Steris' case it is 2.19, and the industry average is 2.23. Since Steris' market/book ratio is slightly lower than the average this means that investors are willing to pay slightly less for a dollar of Steris' book value. However, both Steris and the industry in general have far exceeded the benchmark S&P 500 during the same time period.

To determine liquidity the Current and Quick ratios can be used. Current ratio shows Steris in a...