Yahoo Finance How Does ACM Research's (NASDAQ:ACMR) P/E Compare To Its Industry, After Its Big Share Price Gain?
ACM Research (NASDAQ:ACMR) shares have continued recent momentum with a 36% gain in the last month alone. That brought the twelve month gain to a very sharp 96%.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). The implication here is that deep value investors might steer clear when expectations of a company are too high. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
View our latest analysis for ACM Research
How Does ACM Research's P/E Ratio Compare To Its Peers?
We can tell from its P/E ratio of 19.85 that sentiment around ACM Research isn't particularly high. The image below shows that ACM Research has a lower P/E than the average (33.0) P/E for companies in the semiconductor industry.
ACM Research's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Since the market seems unimpressed with ACM Research, it's quite possible it could surprise on the upside. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
When earnings fall, the 'E' decreases, over time. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.
ACM Research's 104% EPS improvement over the last year was like bamboo growth after rain; rapid and impressive. Unfortunately, earnings per share are down 17% a year, over 5 years.
Remember: P/E Ratios Don't Consider The Balance Sheet
Don't forget that the P/E ratio considers market capitalization. That means it doesn't take debt or cash into account. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).
While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.
ACM Research's Balance Sheet
ACM Research has net cash of US$32m. That should lead to a higher P/E than if it did have debt, because its strong balance sheets gives it more options.
The Bottom Line On ACM Research's P/E Ratio
ACM Research trades on a P/E ratio of 19.8, which is fairly close to the US market average of 18.8. Its net cash position is the cherry on top of its superb EPS growth. So at a glance we're a bit surprised that ACM Research does not have a higher P/E ratio. What is very clear is that the market has become significantly more optimistic about ACM Research over the last month, with the P/E ratio rising from 14.6 back then to 19.8 today. For those who prefer to invest with the flow of momentum, that might mean it's time to put the stock on a watchlist, or research it. But the contrarian may see it as a missed opportunity.
Investors have an opportunity when market expectations about a stock are wrong. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
But note: ACM Research may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
