ASMPT Limited (HKG:522) Not Lagging Market On Growth Or Pricing

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 9x, you may consider ASMPT Limited (HKG:522) as a stock to avoid entirely with its 69.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

ASMPT hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for ASMPT

Keen to find out how analysts think ASMPT's future stacks up against the industry? In that case, our free report is a great place to start.

How Is ASMPT's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 73%. The last three years don't look nice either as the company has shrunk EPS by 49% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 71% each year over the next three years. With the market only predicted to deliver 16% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that ASMPT'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.

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

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.

As we suspected, our examination of ASMPT's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware ASMPT is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than ASMPT. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.