Macmic Science&Technology Co.,Ltd. (SHSE:688711) Stocks Pounded By 25% But Not Lagging Market On Growth Or Pricing

To the annoyance of some shareholders, Macmic Science&Technology Co.,Ltd. (SHSE:688711) shares are down a considerable 25% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 65% share price decline.

Even after such a large drop in price, Macmic Science&TechnologyLtd's price-to-earnings (or "P/E") ratio of 33.1x might still make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Macmic Science&TechnologyLtd certainly has been doing a good job lately as it's been growing earnings more 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.

View our latest analysis for Macmic Science&TechnologyLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Macmic Science&TechnologyLtd.

What Are Growth Metrics Telling Us About The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Macmic Science&TechnologyLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 47%. The latest three year period has also seen an excellent 206% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 127% as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 35%, which is noticeably less attractive.

In light of this, it's understandable that Macmic Science&TechnologyLtd'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 Bottom Line On Macmic Science&TechnologyLtd's P/E

Macmic Science&TechnologyLtd's P/E hasn't come down all the way after its stock plunged. 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.

We've established that Macmic Science&TechnologyLtd 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. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Macmic Science&TechnologyLtd with six simple checks.

You might be able to find a better investment than Macmic Science&TechnologyLtd. 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.