There's No Escaping SEMITEC Corporation's (TSE:6626) Muted Earnings Despite A 37% Share Price Rise

Those holding SEMITEC Corporation (TSE:6626) shares would be relieved that the share price has rebounded 37% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Even after such a large jump in price, SEMITEC may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.8x, since almost half of all companies in Japan have P/E ratios greater than 13x and even P/E's higher than 21x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

We've discovered 1 warning sign about SEMITEC. View them for free.

With earnings growth that's superior to most other companies of late, SEMITEC has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for SEMITEC

If you'd like to see what analysts are forecasting going forward, you should check out our free report on SEMITEC.

Is There Any Growth For SEMITEC?

The only time you'd be truly comfortable seeing a P/E as low as SEMITEC's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 30% last year. EPS has also lifted 18% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 3.7% as estimated by the sole analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 9.7%, which is noticeably more attractive.

With this information, we can see why SEMITEC is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

The latest share price surge wasn't enough to lift SEMITEC's P/E close to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of SEMITEC's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - SEMITEC has 1 warning sign we think you should be aware of.

If you're unsure about the strength of SEMITEC's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.