Pinning Down Aluminum Corporation of China Limited's (HKG:2600) P/E Is Difficult Right Now

Aluminum Corporation of China Limited's (HKG:2600) price-to-earnings (or "P/E") ratio of 10.9x might make it look like a sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 8x and even P/E's below 5x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Aluminum Corporation of China as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Aluminum Corporation of China

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Aluminum Corporation of China.

Does Growth Match The High P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 83%. The strong recent performance means it was also able to grow EPS by 400% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 17% per annum as estimated by the twelve analysts watching the company. With the market predicted to deliver 15% growth per annum, the company is positioned for a comparable earnings result.

With this information, we find it interesting that Aluminum Corporation of China is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Aluminum Corporation of China's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Aluminum Corporation of China's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Aluminum Corporation of China you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.