Jiangxi Copper Company Limited's (HKG:358) Shares Climb 29% But Its Business Is Yet to Catch Up

Despite an already strong run, Jiangxi Copper Company Limited (HKG:358) shares have been powering on, with a gain of 29% in the last thirty days. The last month tops off a massive increase of 132% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Jiangxi Copper's P/E ratio of 14.4x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Recent times have been advantageous for Jiangxi Copper as its earnings have been rising faster 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.

Check out our latest analysis for Jiangxi Copper

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

Does Growth Match The P/E?

Jiangxi Copper's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. The solid recent performance means it was also able to grow EPS by 24% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 7.1% each year during the coming three years according to the nine analysts following the company. With the market predicted to deliver 14% growth each year, the company is positioned for a weaker earnings result.

With this information, we find it interesting that Jiangxi Copper 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 Jiangxi Copper's P/E

Jiangxi Copper appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Jiangxi Copper 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. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

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

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.