Wanguo Gold Group Limited (HKG:3939) Stocks Shoot Up 29% But Its P/E Still Looks Reasonable

Wanguo Gold Group Limited (HKG:3939) shareholders have had their patience rewarded with a 29% share price jump in the last month. This latest share price bounce rounds out a remarkable 301% gain over the last twelve months.

Since its price has surged higher, Wanguo Gold Group's price-to-earnings (or "P/E") ratio of 42.7x might make it look like a strong sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 12x and even P/E's below 7x are quite common. 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.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Wanguo Gold Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Wanguo Gold Group

Want the full picture on analyst estimates for the company? Then our free report on Wanguo Gold Group will help you uncover what's on the horizon.

How Is Wanguo Gold Group's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Wanguo Gold Group's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 72% last year. The strong recent performance means it was also able to grow EPS by 245% 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 five analysts covering the company suggest earnings should grow by 30% each year over the next three years. That's shaping up to be materially higher than the 13% per year growth forecast for the broader market.

In light of this, it's understandable that Wanguo Gold Group's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Wanguo Gold Group have built up some good momentum lately, which has really inflated its P/E. 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 Wanguo Gold Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Wanguo Gold Group that you need to take into consideration.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.