Xinjiang Xinxin Mining Industry Co., Ltd.'s (HKG:3833) Shares Climb 26% But Its Business Is Yet to Catch Up

Explore Xinjiang Xinxin Mining Industry's Fair Values from the Community and select yours

Despite an already strong run, Xinjiang Xinxin Mining Industry Co., Ltd. (HKG:3833) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 75% in the last year.

Following the firm bounce in price, Xinjiang Xinxin Mining Industry may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.8x, since almost half of all companies in Hong Kong have P/E ratios under 12x and even P/E's lower than 7x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Earnings have risen firmly for Xinjiang Xinxin Mining Industry recently, which is pleasing to see. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Xinjiang Xinxin Mining Industry

Although there are no analyst estimates available for Xinjiang Xinxin Mining Industry, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Xinjiang Xinxin Mining Industry's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Xinjiang Xinxin Mining Industry's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 14%. Still, lamentably EPS has fallen 64% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 21% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Xinjiang Xinxin Mining Industry is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Xinjiang Xinxin Mining Industry's P/E

The large bounce in Xinjiang Xinxin Mining Industry's shares has lifted the company's P/E to a fairly high level. 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 Xinjiang Xinxin Mining Industry revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Xinjiang Xinxin Mining Industry that you need to be mindful of.

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.