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Is Shutterfly Inc’s (NASDAQ:SFLY) PE Ratio A Signal To Sell For Investors?

This article is intended for those of you who are at the beginning of your investing journey and want to begin learning the link between Shutterfly Inc (NASDAQ:SFLY)’s fundamentals and stock market performance.

Shutterfly Inc (NASDAQ:SFLY) is trading with a trailing P/E of 86.1x, which is higher than the industry average of 41.3x. Although some investors may jump to the conclusion that you should avoid the stock or sell if you own it, understanding the assumptions behind the P/E ratio might change your mind. In this article, I will explain what the P/E ratio is as well as what you should look out for when using it. Check out our latest analysis for Shutterfly

Demystifying the P/E ratio

NasdaqGS:SFLY PE PEG Gauge June 21st 18
NasdaqGS:SFLY PE PEG Gauge June 21st 18

A common ratio used for relative valuation is the P/E ratio. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.

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P/E Calculation for SFLY

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

SFLY Price-Earnings Ratio = $94.61 ÷ $1.099 = 86.1x

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 SFLY, such as company lifetime and products sold. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. SFLY’s P/E of 86.1x is higher than its industry peers (41.3x), which implies that each dollar of SFLY’s earnings is being overvalued by investors. As such, our analysis shows that SFLY represents an over-priced stock.

Assumptions to watch out for

However, before you rush out to sell your SFLY shares, it is important to note that this conclusion is based on two key assumptions. The first is that our “similar companies” are actually similar to SFLY, or else the difference in P/E might be a result of other factors. For example, if you are comparing lower risk firms with SFLY, 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 SFLY to are fairly valued by the market. If this does not hold, there is a possibility that SFLY’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

If your personal research into the stock confirms what the P/E ratio is telling you, it might be a good time to rebalance your portfolio and reduce your holdings in SFLY. But keep in mind that the usefulness of relative valuation depends on whether you are comfortable with making the assumptions I mentioned above. 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:

  1. Future Outlook: What are well-informed industry analysts predicting for SFLY’s future growth? Take a look at our free research report of analyst consensus for SFLY’s outlook.

  2. Past Track Record: Has SFLY 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 SFLY’s historicals for more clarity.

  3. 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.