Hochschild Mining plc (LON:HOC) Looks Just Right With A 28% Price Jump

Hochschild Mining plc (LON:HOC) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 117% in the last year.

After such a large jump in price, Hochschild Mining may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.9x, since almost half of all companies in the United Kingdom have P/E ratios under 15x and even P/E's lower than 10x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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With earnings growth that's superior to most other companies of late, Hochschild Mining has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Hochschild Mining

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

How Is Hochschild Mining's Growth Trending?

In order to justify its P/E ratio, Hochschild Mining would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 392% gain to the company's bottom line. The latest three year period has also seen an excellent 196% 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.

Looking ahead now, EPS is anticipated to climb by 38% each year during the coming three years according to the eight analysts following the company. With the market only predicted to deliver 15% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Hochschild Mining 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 Key Takeaway

The large bounce in Hochschild Mining's shares has lifted the company's P/E to a fairly high level. 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.

As we suspected, our examination of Hochschild Mining's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 1 warning sign for Hochschild Mining that we have uncovered.

You might be able to find a better investment than Hochschild Mining. 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.