Anji Microelectronics Technology (Shanghai) Co., Ltd.'s (SHSE:688019) P/E Still Appears To Be Reasonable

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 26x, you may consider Anji Microelectronics Technology (Shanghai) Co., Ltd. (SHSE:688019) as a stock to potentially avoid with its 35.2x 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 as high as it is.

Anji Microelectronics Technology (Shanghai)'s negative earnings growth of late has neither been better nor worse than most other companies. It might be that many expect the company's earnings to strengthen positively despite the tough market conditions, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Anji Microelectronics Technology (Shanghai).

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, dishearteningly the company's profits fell to the tune of 1.3%. Even so, admirably EPS has lifted 122% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 23% each year over the next three years. With the market only predicted to deliver 19% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Anji Microelectronics Technology (Shanghai)'s P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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) maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Anji Microelectronics Technology (Shanghai) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.