Shanghai V-Test Semiconductor Tech. Co., Ltd.'s (SHSE:688372) P/E Is Still On The Mark Following 25% Share Price Bounce

Shanghai V-Test Semiconductor Tech. Co., Ltd. (SHSE:688372) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 30% in the last twelve months.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 30x, you may consider Shanghai V-Test Semiconductor Tech as a stock to avoid entirely with its 57.4x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Shanghai V-Test Semiconductor Tech has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Shanghai V-Test Semiconductor Tech

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai V-Test Semiconductor Tech.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Shanghai V-Test Semiconductor Tech would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 62%. Even so, admirably EPS has lifted 99% 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.

Looking ahead now, EPS is anticipated to climb by 98% during the coming year according to the dual analysts following the company. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

With this information, we can see why Shanghai V-Test Semiconductor Tech is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Shanghai V-Test Semiconductor Tech's P/E

Shares in Shanghai V-Test Semiconductor Tech have built up some good momentum lately, which has really inflated its P/E. 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.

We've established that Shanghai V-Test Semiconductor Tech 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Shanghai V-Test Semiconductor Tech you should be aware of.

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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