Further Upside For Shandong Gold Phoenix Co.,Ltd (SHSE:603586) Shares Could Introduce Price Risks After 32% Bounce

Despite an already strong run, Shandong Gold Phoenix Co.,Ltd (SHSE:603586) shares have been powering on, with a gain of 32% in the last thirty days. Unfortunately, despite the strong performance over the last month, the full year gain of 3.1% isn't as attractive.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Shandong Gold PhoenixLtd's P/E ratio of 34.2x, since the median price-to-earnings (or "P/E") ratio in China is also close to 36x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

For instance, Shandong Gold PhoenixLtd's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Shandong Gold PhoenixLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shandong Gold PhoenixLtd will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Shandong Gold PhoenixLtd's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 38%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 1,273% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the market, which is expected to grow by 39% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Shandong Gold PhoenixLtd's P/E sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

Its shares have lifted substantially and now Shandong Gold PhoenixLtd's P/E is also back up to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Shandong Gold PhoenixLtd revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Shandong Gold PhoenixLtd you should be aware of, and 1 of them doesn't sit too well with us.

You might be able to find a better investment than Shandong Gold PhoenixLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (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.