When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider Aehr Test Systems (NASDAQ:AEHR) as a stock to avoid entirely with its 38.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Recent times have been quite advantageous for Aehr Test Systems as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for Aehr Test Systems
Although there are no analyst estimates available for Aehr Test Systems, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Does Growth Match The High P/E?
In order to justify its P/E ratio, Aehr Test Systems would need to produce outstanding growth well in excess of the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 90% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 10% shows it's noticeably less attractive on an annualised basis.
With this information, we find it concerning that Aehr Test Systems is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.
The Key Takeaway
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Our examination of Aehr Test Systems revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
Having said that, be aware Aehr Test Systems is showing 3 warning signs in our investment analysis, and 1 of those is concerning.
If these risks are making you reconsider your opinion on Aehr Test Systems, explore our interactive list of high quality stocks to get an idea of what else is out there.
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.
當將近一半的美國公司的市盈率(或 “市盈率”)低於16倍時,你可以考慮將Aehr Test Systems(納斯達克股票代碼:AEHR)作爲股票,以其38.5倍的市盈率完全避免。儘管如此,我們需要更深入地挖掘,以確定市盈率的高漲是否有合理的基礎。
最近對Aehr Test Systems來說非常有利,因爲其收益一直在快速增長。市盈率可能很高,因爲投資者認爲這種強勁的收益增長足以在不久的將來跑贏整個市場。如果不是,那麼現有股東可能會對股價的可行性有些緊張。
查看我們對 Aehr 測試系統的最新分析
儘管沒有分析師對Aehr Test Systems的估計,但請看一下這個免費的數據豐富的可視化圖表,看看該公司的收益、收入和現金流是如何積累的。