CGN Mining Company Limited's (HKG:1164) P/E Is Still On The Mark Following 28% Share Price Bounce

CGN Mining Company Limited (HKG:1164) shares have continued their recent momentum with a 28% gain in the last month alone. The annual gain comes to 219% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, CGN Mining may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 43.4x, since almost half of all companies in Hong Kong have P/E ratios under 9x and even P/E's lower than 5x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

CGN Mining could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for CGN Mining

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

Is There Enough Growth For CGN Mining?

CGN Mining's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 8.9%. Even so, admirably EPS has lifted 178% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 42% per annum during the coming three years according to the nine analysts following the company. That's shaping up to be materially higher than the 16% each year growth forecast for the broader market.

With this information, we can see why CGN Mining is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From CGN Mining's P/E?

Shares in CGN Mining have built up some good momentum lately, which has really inflated its P/E. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that CGN Mining maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

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

If you're unsure about the strength of CGN Mining'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.