Olympic Circuit Technology Co., Ltd (SHSE:603920) Surges 29% Yet Its Low P/E Is No Reason For Excitement

Olympic Circuit Technology Co., Ltd (SHSE:603920) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, despite the strong performance over the last month, the full year gain of 3.2% isn't as attractive.

In spite of the firm bounce in price, Olympic Circuit Technology's price-to-earnings (or "P/E") ratio of 18.6x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 55x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Olympic Circuit Technology 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. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Olympic Circuit Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Olympic Circuit Technology.

Is There Any Growth For Olympic Circuit Technology?

The only time you'd be truly comfortable seeing a P/E as low as Olympic Circuit Technology's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 62% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 54% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 12% during the coming year according to the two analysts following the company. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

With this information, we can see why Olympic Circuit Technology is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Despite Olympic Circuit Technology's 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.

As we suspected, our examination of Olympic Circuit Technology's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Olympic Circuit Technology.

If these risks are making you reconsider your opinion on Olympic Circuit Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.