AP Memory Technology Corporation (TWSE:6531) Shares Could Be Down 30% But Finding the Low Price Is Still Easy.

AP Memory Technology Corporation (TWSE:6531) shareholders who were waiting for something to happen were hit by a 30% drop in share price last month. The decline over the past 30 days has capped a tough year for shareholders, with the share price down 22% in that time.

Despite the sharp price drop, given that nearly half of Taiwanese companies have price-to-earnings ratios (or “P/E’s”) below 22x, u you can still consider AP Memory Technology as a stock to avoid with its 25.7. x P/E ratio. However, the P/E may be inflated for a reason and needs further research to determine its validity.

It’s been good lately for AP Memory Technology as its earnings have been rising even as market earnings have fluctuated. The P/E is probably high because investors think the company will continue to outperform the market. If not, shareholders may be a little nervous about the performance of the share price.

Check out our latest review for AP Memory Technology

If you would like to see what the analysts are predicting, you should check us out for free report on AP Memory Technology.

Does Growth Equal High P/E?

There is a natural logic that a company should exceed the market for P/E ratios like AP Memory Technology’s to be considered reasonable.

In retrospect, last year brought an exceptional 21% profit for the company. Interestingly, EPS is also up 44% overall from the last three years, thanks to the last 12 months of growth. Therefore, it is fair to say that recent earnings growth has been very positive for the company.

Turning to the future, estimates from two analysts covering the company suggest that earnings growth is heading into negative territory, falling to 6.0% next year. Meanwhile, the broader market is forecast to grow by 23%, which paints a poor picture.

With this information, we find that AP Memory Technology trades at a higher P/E than the market. Apparently many investors in the company reject the pessimism of the group of analysts and are not willing to give up their property at any price. There is a very good chance that shareholders will set themselves up for disappointment in the future if the P/E falls too much based on poor growth prospects.

The Last Word

There is still solid momentum behind AP Memory Technology’s P/E, if not its recent price. We can say that the power of the price-to-earnings ratio is not primarily a valuation tool but rather a measure of investor sentiment and future expectations.

We noted that AP Memory Technology is currently trading at a much higher P/E than expected for a company whose earnings are expected to decline. When we see a poor outlook on earnings going back, we suspect that the share price is in danger of falling, sending the high P/E lower. Unless these conditions improve significantly, it is very difficult to accept these prices as reasonable.

You always need to be aware of risks, for example – AP Memory Technology has one warning sign we think you should be aware.

If you Not sure about AP Memory Technology’s business strengthwhy not check out our list of stocks with solid business fundamentals for some companies you may have missed.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst estimates using an unbiased approach and our articles are not intended as financial advice. It does not make an offer to buy or sell any property, and does not consider your motives, or your financial situation. We are committed to bringing you long-term analysis focused on fundamentals. Note that our review may not include recent company announcements that are not sensitive to pricing or quality equipment. Simply Wall St has no position in the stocks mentioned.

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