Market Participants Recognise Hunan Gold Corporation Limited's (SZSE:002155) Earnings Pushing Shares 31% Higher

Despite an already strong run, Hunan Gold Corporation Limited (SZSE:002155) shares have been powering on, with a gain of 31% in the last thirty days. Unfortunately, despite the strong performance over the last month, the full year gain of 7.7% isn't as attractive.

Following the firm bounce in price, Hunan Gold's price-to-earnings (or "P/E") ratio of 39.7x 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 29x and even P/E's below 18x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Hunan Gold 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 Hunan Gold

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hunan Gold.

Is There Enough Growth For Hunan Gold?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 11% last year. This was backed up an excellent period prior to see EPS up by 114% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 24% per year over the next three years. With the market only predicted to deliver 21% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Hunan Gold'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 Final Word

Hunan Gold's P/E is getting right up there since its shares have risen strongly. 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.

As we suspected, our examination of Hunan Gold'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. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Hunan Gold.

If you're unsure about the strength of Hunan Gold's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.