Soitec SA's (EPA:SOI) 32% Cheaper Price Remains In Tune With Earnings

Unfortunately for some shareholders, the Soitec SA (EPA:SOI) share price has dived 32% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.

Although its price has dipped substantially, it's still not a stretch to say that Soitec's price-to-earnings (or "P/E") ratio of 15.8x right now seems quite "middle-of-the-road" compared to the market in France, where the median P/E ratio is around 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings that are retreating more than the market's of late, Soitec has been very sluggish. One possibility is that the P/E is moderate because investors think the company's earnings trend will eventually fall in line with most others in the market. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

Check out our latest analysis for Soitec

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

How Is Soitec's Growth Trending?

In order to justify its P/E ratio, Soitec would need to produce growth that's similar to the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 4.9%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 119% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the 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 can see why Soitec is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Soitec's P/E?

Following Soitec's share price tumble, its P/E is now hanging on to the median market P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Soitec's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Soitec (1 shouldn't be ignored!) that you should be aware of before investing here.

You might be able to find a better investment than Soitec. 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.