Unigroup Guoxin Microelectronics Co., Ltd. (SZSE:002049) Soars 35% But It's A Story Of Risk Vs Reward

Unigroup Guoxin Microelectronics Co., Ltd. (SZSE:002049) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 28% in the last twelve months.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 34x, you may still consider Unigroup Guoxin Microelectronics as an attractive investment with its 28x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Unigroup Guoxin Microelectronics has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Unigroup Guoxin Microelectronics

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

How Is Unigroup Guoxin Microelectronics' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Unigroup Guoxin Microelectronics' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 33% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 48% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 24% per annum over the next three years. That's shaping up to be materially higher than the 19% each year growth forecast for the broader market.

With this information, we find it odd that Unigroup Guoxin Microelectronics is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Unigroup Guoxin Microelectronics' P/E?

Despite Unigroup Guoxin Microelectronics' shares building up a head of steam, its P/E still lags most other companies. 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 Unigroup Guoxin Microelectronics currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Unigroup Guoxin Microelectronics that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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