The Market Lifts Hunan Gold Corporation Limited (SZSE:002155) Shares 34% But It Can Do More

Despite an already strong run, Hunan Gold Corporation Limited (SZSE:002155) shares have been powering on, with a gain of 34% in the last thirty days. The last 30 days bring the annual gain to a very sharp 90%.

Although its price has surged higher, it's still not a stretch to say that Hunan Gold's price-to-earnings (or "P/E") ratio of 34.7x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 35x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been pleasing for Hunan Gold as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Hunan Gold

Keen to find out how analysts think Hunan 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 P/E?

The only time you'd be comfortable seeing a P/E like Hunan Gold's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 60% last year. The latest three year period has also seen an excellent 156% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 48% during the coming year according to the four analysts following the company. That's shaping up to be materially higher than the 39% growth forecast for the broader market.

In light of this, it's curious that Hunan Gold's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Hunan Gold's P/E

Hunan Gold appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

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

Before you settle on your opinion, we've discovered 1 warning sign for Hunan Gold that you should be aware of.

If these risks are making you reconsider your opinion on Hunan Gold, 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.