GRINM Semiconductor Materials Co., Ltd. (SHSE:688432) Stocks Shoot Up 30% But Its P/E Still Looks Reasonable

Those holding GRINM Semiconductor Materials Co., Ltd. (SHSE:688432) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 34% over that time.

Following the firm bounce in price, GRINM Semiconductor Materials may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 49.8x, 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 so lofty.

Recent times haven't been advantageous for GRINM Semiconductor Materials as its earnings have been falling quicker than most other companies. 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for GRINM Semiconductor Materials

Keen to find out how analysts think GRINM Semiconductor Materials' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For GRINM Semiconductor Materials?

The only time you'd be truly comfortable seeing a P/E as steep as GRINM Semiconductor Materials' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 38% decrease to the company's bottom line. Even so, admirably EPS has lifted 133% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 115% as estimated by the sole analyst watching the company. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.

With this information, we can see why GRINM Semiconductor Materials is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On GRINM Semiconductor Materials' P/E

GRINM Semiconductor Materials' P/E is flying high just like its stock has during the last month. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of GRINM Semiconductor Materials' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with GRINM Semiconductor Materials, and understanding should be part of your investment process.

Of course, you might also be able to find a better stock than GRINM Semiconductor Materials. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.