Why Investors Shouldn't Be Surprised By ACM Research, Inc.'s (NASDAQ:ACMR) 30% Share Price Surge
ACM Research, Inc. (NASDAQ:ACMR) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. The last month tops off a massive increase of 209% in the last year.
Since its price has surged higher, ACM Research may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 26.4x, since almost half of all companies in the United States have P/E ratios under 19x and even P/E's lower than 11x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.
ACM Research certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Check out our latest analysis for ACM Research
Is There Enough Growth For ACM Research?
ACM Research's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.
If we review the last year of earnings growth, the company posted a terrific increase of 26%. Pleasingly, EPS has also lifted 148% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 16% per year over the next three years. With the market only predicted to deliver 12% each year, the company is positioned for a stronger earnings result.
In light of this, it's understandable that ACM Research's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On ACM Research's P/E
The large bounce in ACM Research's shares has lifted the company's P/E to a fairly high level. 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 ACM Research maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.
Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for ACM Research with six simple checks on some of these key factors.
If you're unsure about the strength of ACM Research's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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