Unimicron Technology Corporation (TWSE:3037) shareholders will not be pleased that the share price has had a very tough month this year, falling 26% and erasing some strong results from the previous period. The recent drop has wiped out full-year earnings, with the share price down 8.6% over the same period.
Despite the large drop in its share price, UniMicron Technology's price-to-earnings (P/E) ratio of 25.5x may still look like a sell at the moment when compared to the Taiwanese market, where roughly half of the companies have a P/E ratio below 21x, and P/E ratios below 15x are also fairly common. However, it would be unwise to take the P/E at face value, as there may be a reason why the P/E is so high.
While the market has been experiencing earnings growth recently, UniMicron Technology's earnings have been reversing, which is not great. The P/E ratio may not have fallen sharply because many are expecting a strong recovery in the company's lackluster earnings performance. If not, existing shareholders may be feeling very nervous about the viability of the stock.
Read our latest analysis for Unimicron Technology
TWSE:3037 Price to Earnings Ratio vs. Industry 17 August 2024 If you want to see what analysts are predicting going forward, check out this free report on Unimicron Technology.
What do growth metrics tell us about a high P/E?
There is an inherent assumption that for a P/E ratio like Unimicron Technology's to be considered reasonable, the company must outperform the market.
Looking back, last year was a disappointing 58% drop in the company's bottom line. That said, a period of growth early on helped EPS increase 20% in total compared to three years ago. So we can start by noting that the company has grown its revenue overall over this period, even with some stumbles along the way.
Looking to the future, analysts covering the company are predicting revenue growth of 35% each year for the next three years, while the rest of the market is forecast to grow at just 13% annually, making it significantly less attractive.
With this in mind, it's no surprise that Unimicron Technology's P/E is higher than most other companies – it seems shareholders are not very keen to sell a company that could potentially have a more prosperous future.
Final Words
Despite the recent share price slump, UniMicron Technology's price-to-earnings ratio remains higher than most other companies. While the price-to-earnings ratio isn't a deciding factor in whether or not to buy a stock, it is a very useful barometer for gauging earnings expectations.
We see that UniMicron Technology is maintaining a high P/E ratio, driven by growth forecasts that are higher than the overall market, as expected. At this point, investors feel that the potential for earnings decline is not large enough to justify a lower P/E ratio. As long as these conditions remain unchanged, the stock price will continue to be strongly supported.
There are other important risk factors to consider, and we've spotted 3 warning signs for Unimicron Technology (1 makes us a bit worried!) that you should be aware of before investing.
You might find a better investment than Unimicron Technology, and if you'd like to pick some potential companies, check out this free list of interesting companies with low P/E ratios (but which have proven they can grow earnings).
New Feature: AI Stock Screener and Alerts
Our new AI stock screener scans the market daily to find opportunities.
• Companies with strong dividend yields (yields of 3% or more)
• Undervalued small cap stocks due to insider buying
• Fast-growing technology and AI companies
Or you can build your own indicator from over 50 available.
Try it free now
Have something to say about this article? Do you have any questions about the content? Contact us directly or email us at editorial-team (at) simplywallst.com.
This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
