After Leaping 26% Chifeng Jilong Gold Mining Co.,Ltd. (SHSE:600988) Shares Are Not Flying Under The Radar

Chifeng Jilong Gold Mining Co.,Ltd. (SHSE:600988) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 38% in the last year.

After such a large jump in price, Chifeng Jilong Gold MiningLtd's price-to-earnings (or "P/E") ratio of 36.9x 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.

With earnings growth that's superior to most other companies of late, Chifeng Jilong Gold MiningLtd has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Is There Enough Growth For Chifeng Jilong Gold MiningLtd?

In order to justify its P/E ratio, Chifeng Jilong Gold MiningLtd would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 151% gain to the company's bottom line. As a result, it also grew EPS by 12% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 28% each year over the next three years. With the market only predicted to deliver 24% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Chifeng Jilong Gold MiningLtd 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.

The Final Word

The large bounce in Chifeng Jilong Gold MiningLtd's shares has lifted the company's P/E to a fairly high level. 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.

We've established that Chifeng Jilong Gold MiningLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Chifeng Jilong Gold MiningLtd with six simple checks.

If these risks are making you reconsider your opinion on Chifeng Jilong Gold MiningLtd, 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.

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