After Leaping 25% Zhaojin Mining Industry Company Limited (HKG:1818) Shares Are Not Flying Under The Radar

Zhaojin Mining Industry Company Limited (HKG:1818) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Looking further back, the 14% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, Zhaojin Mining Industry may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 57.6x, since almost half of all companies in Hong Kong have P/E ratios under 8x and even P/E's lower than 4x 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 so lofty.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Zhaojin Mining Industry has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Zhaojin Mining Industry

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

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Zhaojin Mining Industry's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 82% gain to the company's bottom line. Still, incredibly EPS has fallen 41% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 108% over the next year. Meanwhile, the rest of the market is forecast to only expand by 23%, which is noticeably less attractive.

With this information, we can see why Zhaojin Mining Industry 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.

The Bottom Line On Zhaojin Mining Industry's P/E

Zhaojin Mining Industry's P/E is flying high just like its stock has during the last month. 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.

We've established that Zhaojin Mining Industry 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. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Zhaojin Mining Industry has 1 warning sign we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.