Earnings Not Telling The Story For Advanced Technology & Materials Co., Ltd. (SZSE:000969)

There wouldn't be many who think Advanced Technology & Materials Co., Ltd.'s (SZSE:000969) price-to-earnings (or "P/E") ratio of 33x is worth a mention when the median P/E in China is similar at about 37x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Advanced Technology & Materials has been doing quite well of late. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Advanced Technology & Materials

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

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Advanced Technology & Materials' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 67% last year. The strong recent performance means it was also able to grow EPS by 103% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 8.5% during the coming year according to the sole analyst following the company. With the market predicted to deliver 37% growth , the company is positioned for a weaker earnings result.

In light of this, it's curious that Advanced Technology & Materials' P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

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.

Our examination of Advanced Technology & Materials' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Advanced Technology & Materials that you need to be mindful of.

Of course, you might also be able to find a better stock than Advanced Technology & Materials. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.