Earnings Tell The Story For Amkor Technology, Inc. (NASDAQ:AMKR) As Its Stock Soars 29%

Despite an already strong run, Amkor Technology, Inc. (NASDAQ:AMKR) shares have been powering on, with a gain of 29% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 45% in the last year.

Since its price has surged higher, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider Amkor Technology as a stock to avoid entirely with its 30.4x P/E ratio. 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.

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Amkor Technology hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, 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.

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Does Growth Match The High P/E?

Amkor Technology's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 63% 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 ten analysts covering the company suggest earnings should grow by 22% per year over the next three years. That's shaping up to be materially higher than the 11% each year growth forecast for the broader market.

With this information, we can see why Amkor Technology is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Amkor Technology's P/E?

Shares in Amkor Technology have built up some good momentum lately, which has really inflated its 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.

We've established that Amkor Technology 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.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Amkor Technology with six simple checks.

If these risks are making you reconsider your opinion on Amkor Technology, 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.