Why We're Not Concerned Yet About SÜSS MicroTec SE's (ETR:SMHN) 26% Share Price Plunge

SÜSS MicroTec SE (ETR:SMHN) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 128% in the last twelve months.

In spite of the heavy fall in price, SÜSS MicroTec's price-to-earnings (or "P/E") ratio of 22.9x might still make it look like a strong sell right now compared to the market in Germany, where around half of the companies have P/E ratios below 15x and even P/E's below 10x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

SÜSS MicroTec certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View 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.

How Is SÜSS MicroTec's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 54% gain to the company's bottom line. Pleasingly, EPS has also lifted 123% 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.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 52% over the next year. With the market only predicted to deliver 22%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that SÜSS MicroTec'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 Final Word

Even after such a strong price drop, SÜSS MicroTec's P/E still exceeds the rest of the market significantly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that SÜSS MicroTec maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for SÜSS MicroTec (1 can't be ignored!) 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.