Zhaojin Mining Industry Company Limited's (HKG:1818) 28% Jump Shows Its Popularity With Investors

Zhaojin Mining Industry Company Limited (HKG:1818) shares have continued their recent momentum with a 28% gain in the last month alone. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.9% over the last year.

Following the firm bounce in price, Zhaojin Mining Industry's price-to-earnings (or "P/E") ratio of 45.9x might make it look like a strong sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 9x and even P/E's below 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Zhaojin Mining Industry certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Zhaojin Mining Industry

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

How Is Zhaojin Mining Industry's Growth Trending?

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.

If we review the last year of earnings growth, the company posted a terrific increase of 103%. However, this wasn't enough as the latest three year period has seen a very unpleasant 17% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 38% each year during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 15% each year, which is noticeably less attractive.

In light of this, it's understandable that Zhaojin Mining Industry's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

Shares in Zhaojin Mining Industry have built up some good momentum lately, which has really inflated its P/E. 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.

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. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Zhaojin Mining Industry you should be aware of, and 1 of them is a bit concerning.

If these risks are making you reconsider your opinion on Zhaojin Mining Industry, 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.