Subdued Growth No Barrier To Anji Microelectronics Technology (Shanghai) Co., Ltd. (SHSE:688019) With Shares Advancing 25%

Anji Microelectronics Technology (Shanghai) Co., Ltd. (SHSE:688019) shares have had a really impressive month, gaining 25% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.9% in the last twelve months.

Since its price has surged higher, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 32x, you may consider Anji Microelectronics Technology (Shanghai) as a stock to potentially avoid with its 37.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times have been advantageous for Anji Microelectronics Technology (Shanghai) as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See 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).

How Is Anji Microelectronics Technology (Shanghai)'s Growth Trending?

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.

Taking a look back first, we see that the company grew earnings per share by an impressive 25% last year. Pleasingly, EPS has also lifted 215% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 16% per year over the next three years. That's shaping up to be materially lower than the 25% per annum growth forecast for the broader market.

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) shares have received a push in the right direction, but its P/E is elevated too. 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 Anji Microelectronics Technology (Shanghai)'s analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Anji Microelectronics Technology (Shanghai).

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.