StarPower Semiconductor Ltd. (SHSE:603290) Could Be Riskier Than It Looks

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may consider StarPower Semiconductor Ltd. (SHSE:603290) as an attractive investment with its 24.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

StarPower Semiconductor could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for StarPower Semiconductor

Want the full picture on analyst estimates for the company? Then our free report on StarPower Semiconductor will help you uncover what's on the horizon.

Is There Any Growth For StarPower Semiconductor?

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

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Although pleasingly EPS has lifted 254% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 28% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 24% per annum, which is noticeably less attractive.

With this information, we find it odd that StarPower Semiconductor is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that StarPower Semiconductor currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 2 warning signs for StarPower Semiconductor (of which 1 is potentially serious!) you should know about.

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

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.

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