Anji Microelectronics Technology (Shanghai) Co., Ltd. (SHSE:688019) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

Those holding Anji Microelectronics Technology (Shanghai) Co., Ltd. (SHSE:688019) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.5% in the last twelve months.

Since its price has surged higher, Anji Microelectronics Technology (Shanghai) may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 39.2x, since almost half of all companies in China have P/E ratios under 29x and even P/E's lower than 18x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Anji Microelectronics Technology (Shanghai) certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Anji Microelectronics Technology (Shanghai)

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Is There Enough Growth For Anji Microelectronics Technology (Shanghai)?

There's an inherent assumption that a company should outperform the market for P/E ratios like Anji Microelectronics Technology (Shanghai)'s to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 28%. The latest three year period has also seen an excellent 145% 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 year should generate growth of 19% as estimated by the seven analysts watching the company. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

With this information, we find it concerning that Anji Microelectronics Technology (Shanghai) is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

Anji Microelectronics Technology (Shanghai)'s P/E is getting right up there since its shares have risen strongly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Anji Microelectronics Technology (Shanghai) currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You always need to take note of risks, for example - Anji Microelectronics Technology (Shanghai) has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Anji Microelectronics Technology (Shanghai), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.