The Price Is Right For OPT Machine Vision Tech Co., Ltd. (SHSE:688686) Even After Diving 26%

OPT Machine Vision Tech Co., Ltd. (SHSE:688686) shares have had a horrible month, losing 26% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 51% share price decline.

In spite of the heavy fall in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may still consider OPT Machine Vision Tech as a stock to potentially avoid with its 41.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

OPT Machine Vision Tech could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for OPT Machine Vision Tech

Want the full picture on analyst estimates for the company? Then our free report on OPT Machine Vision Tech will help you uncover what's on the horizon.

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

The only time you'd be truly comfortable seeing a P/E as high as OPT Machine Vision Tech's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 36% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 55% during the coming year according to the six analysts following the company. With the market only predicted to deliver 35%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that OPT Machine Vision Tech's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

There's still some solid strength behind OPT Machine Vision Tech's P/E, if not its share price lately. 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 OPT Machine Vision Tech's 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 is also worth noting that we have found 1 warning sign for OPT Machine Vision Tech that you need to take into consideration.

You might be able to find a better investment than OPT Machine Vision Tech. 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.