Zijin Mining Group Company Limited's (HKG:2899) P/E Is Still On The Mark Following 39% Share Price Bounce

The Zijin Mining Group Company Limited (HKG:2899) share price has done very well over the last month, posting an excellent gain of 39%. Looking back a bit further, it's encouraging to see the stock is up 32% in the last year.

Since its price has surged higher, Zijin Mining Group may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 19.6x, 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.

Zijin Mining Group has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Zijin Mining Group

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Does Growth Match The High P/E?

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

Retrospectively, the last year delivered a frustrating 6.2% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 219% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 27% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 15% per year, which is noticeably less attractive.

With this information, we can see why Zijin Mining Group 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 Zijin Mining Group's P/E

Shares in Zijin Mining Group have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Zijin Mining Group 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.

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

If you're unsure about the strength of Zijin Mining Group'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.