After Leaping 56% Shanghai V-Test Semiconductor Tech. Co., Ltd. (SHSE:688372) Shares Are Not Flying Under The Radar

Simply Wall St · 10/16 22:27

The Shanghai V-Test Semiconductor Tech. Co., Ltd. (SHSE:688372) share price has done very well over the last month, posting an excellent gain of 56%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 38% in the last twelve months.

Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 31x, you may consider Shanghai V-Test Semiconductor Tech as a stock to avoid entirely with its 73.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings that are retreating more than the market's of late, Shanghai V-Test Semiconductor Tech has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Shanghai V-Test Semiconductor Tech

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SHSE:688372 Price to Earnings Ratio vs Industry October 16th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai V-Test Semiconductor Tech.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Shanghai V-Test Semiconductor Tech would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 47%. The last three years don't look nice either as the company has shrunk EPS by 51% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 94% during the coming year according to the four analysts following the company. That's shaping up to be materially higher than the 37% growth forecast for the broader market.

In light of this, it's understandable that Shanghai V-Test Semiconductor Tech's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Shanghai V-Test Semiconductor Tech's P/E?

The strong share price surge has got Shanghai V-Test Semiconductor Tech's P/E rushing to great heights as well. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Shanghai V-Test Semiconductor Tech's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Shanghai V-Test Semiconductor Tech is showing 4 warning signs in our investment analysis, and 2 of those are a bit concerning.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.