Those holding Olympic Circuit Technology Co., Ltd (SHSE:603920) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Notwithstanding the latest gain, the annual share price return of 3.2% isn't as impressive.
In spite of the firm bounce in price, Olympic Circuit Technology's price-to-earnings (or "P/E") ratio of 18.6x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 55x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Olympic Circuit Technology has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Is There Any Growth For Olympic Circuit Technology?
Olympic Circuit Technology's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
If we review the last year of earnings growth, the company posted a terrific increase of 62%. Pleasingly, EPS has also lifted 54% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 12% over the next year. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.
In light of this, it's understandable that Olympic Circuit Technology's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
What We Can Learn From Olympic Circuit Technology's P/E?
The latest share price surge wasn't enough to lift Olympic Circuit Technology's P/E close to the market median. 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.
As we suspected, our examination of Olympic Circuit Technology's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
It is also worth noting that we have found 1 warning sign for Olympic Circuit Technology that you need to take into consideration.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.