Investors Interested In BE Semiconductor Industries N.V.'s (AMS:BESI) Earnings

BE Semiconductor Industries N.V.'s (AMS:BESI) price-to-earnings (or "P/E") ratio of 66.9x might make it look like a strong sell right now compared to the market in the Netherlands, where around half of the companies have P/E ratios below 16x and even P/E's below 7x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, BE Semiconductor Industries has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

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Is There Enough Growth For BE Semiconductor Industries?

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

Retrospectively, the last year delivered a frustrating 39% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 26% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 43% per year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 17% per annum, which is noticeably less attractive.

In light of this, it's understandable that BE Semiconductor Industries' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that BE Semiconductor Industries maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for BE Semiconductor Industries you should know about.

If these risks are making you reconsider your opinion on BE Semiconductor Industries, 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.