Shandong Gold Mining Co., Ltd. (SHSE:600547) Stocks Shoot Up 35% But Its P/E Still Looks Reasonable

Shandong Gold Mining Co., Ltd. (SHSE:600547) shares have continued their recent momentum with a 35% gain in the last month alone. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, Shandong Gold Mining may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 79.4x, since almost half of all companies in China have P/E ratios under 30x and even P/E's lower than 18x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Shandong Gold Mining 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Shandong Gold Mining

Keen to find out how analysts think Shandong Gold Mining's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Shandong Gold Mining?

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

If we review the last year of earnings growth, the company posted a terrific increase of 110%. However, this wasn't enough as the latest three year period has seen a very unpleasant 11% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 48% per annum during the coming three years according to the analysts following the company. With the market only predicted to deliver 20% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Shandong Gold Mining's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has got Shandong Gold Mining's P/E rushing to great heights as well. 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.

As we suspected, our examination of Shandong Gold Mining'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. It's hard to see the share price falling 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 Shandong Gold Mining that you should be aware of.

If these risks are making you reconsider your opinion on Shandong Gold Mining, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.