Market Participants Recognise Guangxi Huaxi Nonferrous Metal Co.,Ltd's (SHSE:600301) Earnings

Guangxi Huaxi Nonferrous Metal Co.,Ltd's (SHSE:600301) price-to-earnings (or "P/E") ratio of 32.4x might make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 28x and even P/E's below 17x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Guangxi Huaxi Nonferrous MetalLtd as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Guangxi Huaxi Nonferrous MetalLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Guangxi Huaxi Nonferrous MetalLtd.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Guangxi Huaxi Nonferrous MetalLtd's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 108%. The strong recent performance means it was also able to grow EPS by 320% in total over the last three years. 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 31% per year as estimated by the one analyst watching the company. With the market only predicted to deliver 25% each year, the company is positioned for a stronger earnings result.

With this information, we can see why Guangxi Huaxi Nonferrous MetalLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Guangxi Huaxi Nonferrous MetalLtd's P/E?

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.

As we suspected, our examination of Guangxi Huaxi Nonferrous MetalLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for Guangxi Huaxi Nonferrous MetalLtd that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com