Inner Mongolia Xingye Silver &Tin Mining Co.,Ltd (SZSE:000426) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 26%.
After such a large jump in price, given around half the companies in China have price-to-earnings ratios (or “P/E’s”) below 29x, you may consider Inner Mongolia Xingye Silver &Tin MiningLtd as a stock to potentially avoid with its 36.3x P/E ratio. 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.
Inner Mongolia Xingye Silver &Tin MiningLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.
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Is There Enough Growth For Inner Mongolia Xingye Silver &Tin MiningLtd?
In order to justify its P/E ratio, Inner Mongolia Xingye Silver &Tin MiningLtd would need to produce impressive growth in excess of the market.
If we review the last year of earnings growth, the company posted a terrific increase of 195%. The latest three year period has also seen an excellent 480% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 218% over the next year. Meanwhile, the rest of the market is forecast to only expand by 41%, which is noticeably less attractive.
With this information, we can see why Inner Mongolia Xingye Silver &Tin MiningLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Final Word
The large bounce in Inner Mongolia Xingye Silver &Tin MiningLtd’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.
As we suspected, our examination of Inner Mongolia Xingye Silver &Tin MiningLtd’s analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn’t great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.
Many other vital risk factors can be found on the company’s balance sheet. You can assess many of the main risks through our free balance sheet analysis for Inner Mongolia Xingye Silver &Tin MiningLtd with six simple checks.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
Valuation is complex, but we’re helping make it simple.
Find out whether Inner Mongolia Xingye Silver &Tin MiningLtd is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.