Fewer Investors Than Expected Jumping On Shanjin International Gold Co., Ltd. (SZSE:000975)

With a price-to-earnings (or "P/E") ratio of 29.3x Shanjin International Gold Co., Ltd. (SZSE:000975) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 64x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Shanjin International Gold certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Shanjin International Gold

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

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shanjin International Gold's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 37% last year. The latest three year period has also seen an excellent 36% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 22% per annum over the next three years. With the market only predicted to deliver 19% each year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Shanjin International Gold's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

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.

Our examination of Shanjin International Gold's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shanjin International Gold you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.