SUSS MicroTec SE's (ETR:SMHN) Share Price Boosted 33% But Its Business Prospects Need A Lift Too

SUSS MicroTec SE (ETR:SMHN) shareholders are no doubt pleased to see that the share price has bounced 33% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 28% in the last twelve months.

Even after such a large jump in price, SUSS MicroTec may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12.1x, since almost half of all companies in Germany have P/E ratios greater than 19x and even P/E's higher than 37x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

We've discovered 1 warning sign about SUSS MicroTec. View them for free.

Recent times have been advantageous for SUSS MicroTec as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for SUSS MicroTec

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How Is SUSS MicroTec's Growth Trending?

SUSS MicroTec's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 130% last year. Pleasingly, EPS has also lifted 244% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 3.4% per year as estimated by the eight analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 16% per annum, which is noticeably more attractive.

In light of this, it's understandable that SUSS MicroTec's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

The latest share price surge wasn't enough to lift SUSS MicroTec's P/E close to the market median. 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 SUSS MicroTec maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. 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 SUSS MicroTec.

If these risks are making you reconsider your opinion on SUSS 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.