Earnings Not Telling The Story For SÜSS MicroTec SE (ETR:SMHN) After Shares Rise 30%

SÜSS MicroTec SE (ETR:SMHN) shares have continued their recent momentum with a 30% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 68%.

After such a large jump in price, SÜSS MicroTec may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 22.4x, since almost half of all companies in Germany have P/E ratios under 16x and even P/E's lower than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, SÜSS MicroTec has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for SÜSS MicroTec

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Does Growth Match The High P/E?

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

Retrospectively, the last year delivered an exceptional 222% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 13% each year during the coming three years according to the five analysts following the company. With the market predicted to deliver 13% growth each year, the company is positioned for a comparable earnings result.

With this information, we find it interesting that SÜSS MicroTec is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

SÜSS MicroTec's P/E is getting right up there since its shares have risen strongly. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of SÜSS MicroTec's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with SÜSS MicroTec, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on SÜSS MicroTec, 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.