Earnings Tell The Story For Inner Mongolia Xingye Silver &Tin Mining Co.,Ltd (SZSE:000426) As Its Stock Soars 25%

Inner Mongolia Xingye Silver &Tin Mining Co.,Ltd (SZSE:000426) shares have continued their recent momentum with a 25% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 54%.

Since its price has surged higher, Inner Mongolia Xingye Silver &Tin MiningLtd's price-to-earnings (or "P/E") ratio of 49.9x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been advantageous for Inner Mongolia Xingye Silver &Tin MiningLtd 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.

View our latest analysis for Inner Mongolia Xingye Silver &Tin MiningLtd

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Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Inner Mongolia Xingye Silver &Tin MiningLtd's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 131%. The strong recent performance means it was also able to grow EPS by 480% 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 year should generate growth of 218% as estimated by the dual analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 36%, which is noticeably less attractive.

With this information, we can see why Inner Mongolia Xingye Silver &Tin 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 Bottom Line On Inner Mongolia Xingye Silver &Tin MiningLtd's P/E

The strong share price surge has got Inner Mongolia Xingye Silver &Tin MiningLtd's P/E rushing to great heights as well. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Inner Mongolia Xingye Silver &Tin 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 Inner Mongolia Xingye Silver &Tin MiningLtd with six simple checks.

You might be able to find a better investment than Inner Mongolia Xingye Silver &Tin MiningLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.