Planet Image International Limited's (NASDAQ:YIBO) Shares Climb 34% But Its Business Is Yet to Catch Up

Despite an already strong run, Planet Image International Limited (NASDAQ:YIBO) shares have been powering on, with a gain of 34% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 93% in the last year.

Since its price has surged higher, Planet Image International may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 34.3x, since almost half of all companies in the United States have P/E ratios under 18x and even P/E's lower than 11x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Planet Image International over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Planet Image International

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Planet Image International's earnings, revenue and cash flow.

Is There Enough Growth For Planet Image International?

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

Retrospectively, the last year delivered a frustrating 9.4% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 29% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 15% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's alarming that Planet Image International's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On Planet Image International's P/E

The strong share price surge has got Planet Image International's P/E rushing to great heights as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Planet Image International revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You always need to take note of risks, for example - Planet Image International has 1 warning sign we think you should be aware of.

You might be able to find a better investment than Planet Image International. 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.