Market Participants Recognise Lontium Semiconductor Corporation's (SHSE:688486) Earnings Pushing Shares 32% Higher

Despite an already strong run, Lontium Semiconductor Corporation (SHSE:688486) shares have been powering on, with a gain of 32% in the last thirty days. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 37x, you may consider Lontium Semiconductor as a stock to avoid entirely with its 70.8x 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.

Lontium Semiconductor certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Lontium Semiconductor

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

Is There Enough Growth For Lontium Semiconductor?

In order to justify its P/E ratio, Lontium Semiconductor would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 26% last year. As a result, it also grew EPS by 13% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 55% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.

With this information, we can see why Lontium Semiconductor 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 Lontium Semiconductor's P/E

The strong share price surge has got Lontium Semiconductor's P/E rushing to great heights as well. 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.

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

Having said that, be aware Lontium Semiconductor is showing 3 warning signs in our investment analysis, and 1 of those can't be ignored.

Of course, you might also be able to find a better stock than Lontium Semiconductor. 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.