A Piece Of The Puzzle Missing From CNNC International Limited's (HKG:2302) 34% Share Price Climb

CNNC International Limited (HKG:2302) shares have continued their recent momentum with a 34% gain in the last month alone. The last month tops off a massive increase of 222% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about CNNC International's P/E ratio of 11.7x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 12x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Recent times have been quite advantageous for CNNC International as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. 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.

See our latest analysis for CNNC International

Although there are no analyst estimates available for CNNC International, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is CNNC International's Growth Trending?

In order to justify its P/E ratio, CNNC International would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 136% last year. The latest three year period has also seen an excellent 1,030% 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.

Comparing that to the market, which is only predicted to deliver 20% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it interesting that CNNC International is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

CNNC International's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 CNNC International revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for CNNC International that you should be aware of.

If you're unsure about the strength of CNNC International'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.