Pangang Group Vanadium & Titanium Resources Co., Ltd. (SZSE:000629) Stocks Shoot Up 27% But Its P/E Still Looks Reasonable

Pangang Group Vanadium & Titanium Resources Co., Ltd. (SZSE:000629) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider Pangang Group Vanadium & Titanium Resources as a stock to avoid entirely with its 46.3x P/E ratio. 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 haven't been advantageous for Pangang Group Vanadium & Titanium Resources as its earnings have been falling quicker than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Pangang Group Vanadium & Titanium Resources

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How Is Pangang Group Vanadium & Titanium Resources' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Pangang Group Vanadium & Titanium Resources' is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 36%. This means it has also seen a slide in earnings over the longer-term as EPS is down 44% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 23% each year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 19% each year growth forecast for the broader market.

In light of this, it's understandable that Pangang Group Vanadium & Titanium Resources' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Pangang Group Vanadium & Titanium Resources' P/E is flying high just like its stock has during the last month. 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.

We've established that Pangang Group Vanadium & Titanium Resources 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Pangang Group Vanadium & Titanium Resources with six simple checks will allow you to discover any risks that could be an issue.

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.