It's not a stretch to say that Shanghai Fullhan Microelectronics Co., Ltd.'s (SZSE:300613) price-to-earnings (or "P/E") ratio of 29.4x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 29x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for Shanghai Fullhan Microelectronics as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Shanghai Fullhan Microelectronics

SZSE:300613 Price Based on Past Earnings May 7th 2022 If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Fullhan Microelectronics.

How Is Shanghai Fullhan Microelectronics' Growth Trending?

Shanghai Fullhan Microelectronics' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 368% last year. The latest three year period has also seen an excellent 3,194% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 24% per annum as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 26% per annum, which is not materially different.

In light of this, it's understandable that Shanghai Fullhan Microelectronics' P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Shanghai Fullhan Microelectronics' P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Shanghai Fullhan Microelectronics maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Shanghai Fullhan Microelectronics (1 is a bit unpleasant) you should be aware of.

You might be able to find a better investment than Shanghai Fullhan Microelectronics. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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.