Improved Earnings Required Before Jinneng Holding Shanxi Coal Industry Co.,ltd. (SHSE:601001) Stock's 28% Jump Looks Justified

Jinneng Holding Shanxi Coal Industry Co.,ltd. (SHSE:601001) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 101% in the last year.

Although its price has surged higher, Jinneng Holding Shanxi Coal Industryltd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.5x, since almost half of all companies in China have P/E ratios greater than 32x and even P/E's higher than 60x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Jinneng Holding Shanxi Coal Industryltd certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Jinneng Holding Shanxi Coal Industryltd

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How Is Jinneng Holding Shanxi Coal Industryltd's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Jinneng Holding Shanxi Coal Industryltd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 19% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 210% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 4.6% per annum during the coming three years according to the five analysts following the company. That's shaping up to be materially lower than the 26% per annum growth forecast for the broader market.

In light of this, it's understandable that Jinneng Holding Shanxi Coal Industryltd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Jinneng Holding Shanxi Coal Industryltd's P/E?

Shares in Jinneng Holding Shanxi Coal Industryltd are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 Jinneng Holding Shanxi Coal Industryltd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Jinneng Holding Shanxi Coal Industryltd you should be aware of.

Of course, you might also be able to find a better stock than Jinneng Holding Shanxi Coal Industryltd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.