SÜSS MicroTec SE's (ETR:SMHN) Shares Climb 30% But Its Business Is Yet to Catch Up

SÜSS MicroTec SE (ETR:SMHN) shares have continued their recent momentum with a 30% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 68% in the last year.

Since its price has surged higher, 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been pleasing for SÜSS MicroTec as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for SÜSS MicroTec

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

Does Growth Match The High P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 222% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 13% per year as estimated by the five analysts watching the company. That's shaping up to be similar to the 13% per annum growth forecast for the broader market.

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.

What We Can Learn From SÜSS MicroTec's P/E?

SÜSS MicroTec shares have received a push in the right direction, but its P/E is elevated too. 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 SÜSS MicroTec currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 1 warning sign for SÜSS MicroTec that you need to be mindful of.

You might be able to find a better investment than SÜSS MicroTec. 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.