Improved Earnings Required Before Zhongjin Gold Corp.,Ltd (SHSE:600489) Stock's 28% Jump Looks Justified

Zhongjin Gold Corp.,Ltd (SHSE:600489) shareholders have had their patience rewarded with a 28% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 25%.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may still consider Zhongjin GoldLtd as an attractive investment with its 24.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Zhongjin GoldLtd 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.

Check out our latest analysis for Zhongjin GoldLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhongjin GoldLtd.

Is There Any Growth For Zhongjin GoldLtd?

The only time you'd be truly comfortable seeing a P/E as low as Zhongjin GoldLtd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 45% gain to the company's bottom line. Pleasingly, EPS has also lifted 105% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 19% over the next year. With the market predicted to deliver 39% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that Zhongjin GoldLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

The latest share price surge wasn't enough to lift Zhongjin GoldLtd's P/E close to the market median. 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 Zhongjin GoldLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Zhongjin GoldLtd that you should be aware of.

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.