Investors Still Waiting For A Pull Back In ACM Research (Shanghai), Inc. (SHSE:688082)

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider ACM Research (Shanghai), Inc. (SHSE:688082) as a stock to potentially avoid with its 37.2x 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.

ACM Research (Shanghai) certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for ACM Research (Shanghai)

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

How Is ACM Research (Shanghai)'s Growth Trending?

ACM Research (Shanghai)'s P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 36% gain to the company's bottom line. Pleasingly, EPS has also lifted 318% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 27% each year as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 21% each year growth forecast for the broader market.

In light of this, it's understandable that ACM Research (Shanghai)'s P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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 ACM Research (Shanghai) maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for ACM Research (Shanghai) (1 makes us a bit uncomfortable!) that you need to be mindful of.

You might be able to find a better investment than ACM Research (Shanghai). If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.