Subdued Growth No Barrier To Aluminum Corporation of China Limited (HKG:2600) With Shares Advancing 33%

The Aluminum Corporation of China Limited (HKG:2600) share price has done very well over the last month, posting an excellent gain of 33%. Looking back a bit further, it's encouraging to see the stock is up 51% in the last year.

Although its price has surged higher, there still wouldn't be many who think Aluminum Corporation of China's price-to-earnings (or "P/E") ratio of 9.3x is worth a mention when the median P/E in Hong Kong is similar at about 10x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Aluminum Corporation of China certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 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.

Is There Some Growth For Aluminum Corporation of China?

There's an inherent assumption that a company should be matching the market for P/E ratios like Aluminum Corporation of China's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 237% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 183% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 6.9% per annum over the next three years. That's shaping up to be materially lower than the 13% each year growth forecast for the broader market.

With this information, we find it interesting that Aluminum Corporation of China is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

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

Its shares have lifted substantially and now Aluminum Corporation of China's P/E is also back up to the market median. 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 Aluminum Corporation of China currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Aluminum Corporation of China with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Aluminum Corporation of China. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.