More Unpleasant Surprises Could Be In Store For APT Medical Inc.'s (SHSE:688617) Shares After Tumbling 27%

To the annoyance of some shareholders, APT Medical Inc. (SHSE:688617) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Longer-term shareholders would now have taken a real hit with the stock declining 9.0% in the last year.

In spite of the heavy fall in price, APT Medical may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 38.2x, since almost half of all companies in China have P/E ratios under 26x and even P/E's lower than 16x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, APT Medical has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for APT Medical

Keen to find out how analysts think APT Medical's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For APT Medical?

APT Medical's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 45% last year. The latest three year period has also seen an excellent 200% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 22% each year as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 24% per annum, which is not materially different.

With this information, we find it interesting that APT Medical is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On APT Medical's P/E

APT Medical's P/E hasn't come down all the way after its stock plunged. 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.

We've established that APT Medical currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for APT Medical that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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