Investors Don't See Light At End Of Elmos Semiconductor SE's (ETR:ELG) Tunnel And Push Stock Down 26%

To the annoyance of some shareholders, Elmos Semiconductor SE (ETR:ELG) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.

Even after such a large drop in price, Elmos Semiconductor may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.7x, since almost half of all companies in Germany have P/E ratios greater than 17x and even P/E's higher than 30x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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Recent times have been advantageous for Elmos Semiconductor as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, 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.

View our latest analysis for Elmos Semiconductor

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

How Is Elmos Semiconductor's Growth Trending?

In order to justify its P/E ratio, Elmos Semiconductor would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 30%. The latest three year period has also seen an excellent 236% 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 three years should bring diminished returns, with earnings decreasing 2.3% per annum as estimated by the six analysts watching the company. Meanwhile, the broader market is forecast to expand by 15% per annum, which paints a poor picture.

In light of this, it's understandable that Elmos Semiconductor's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Elmos Semiconductor's P/E?

Shares in Elmos Semiconductor have plummeted and its P/E is now low enough to touch the ground. 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.

We've established that Elmos Semiconductor maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Elmos Semiconductor (of which 2 are concerning!) you should know about.

You might be able to find a better investment than Elmos Semiconductor. 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.