NASDAQ:ACMR) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 18x and even P/E’s lower than 10x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.” data-reactid=”28″>With a price-to-earnings (or “P/E”) ratio of 73.2x ACM Research, Inc. (NASDAQ:ACMR) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 18x and even P/E’s lower than 10x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
ACM Research certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
See our latest analysis for ACM Research ” data-reactid=”30″> See our latest analysis for ACM Research
free report is a great place to start.” data-reactid=”47″>Keen to find out how analysts think ACM Research’s future stacks up against the industry? In that case, our free report is a great place to start.
How Is ACM Research’s Growth Trending?
There’s an inherent assumption that a company should far outperform the market for P/E ratios like ACM Research’s to be considered reasonable.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.4% last year. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Therefore, it’s fair to say that earnings growth has been inconsistent recently for the company.
Turning to the outlook, the next three years should generate growth of 51% each year as estimated by the eight analysts watching the company. That’s shaping up to be materially higher than the 13% each year growth forecast for the broader market.
In light of this, it’s understandable that ACM Research’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.
The Final Word
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.
As we suspected, our examination of ACM Research’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.
2 warning signs for ACM Research (1 makes us a bit uncomfortable!) that you need to take into consideration.” data-reactid=”56″>It is also worth noting that we have found 2 warning signs for ACM Research (1 makes us a bit uncomfortable!) that you need to take into consideration.
list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).” data-reactid=”57″>You might be able to find a better investment than ACM Research. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>This article by Simply Wall St is general in nature. 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.
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