China Daye Non-Ferrous Metals Mining Limited (HKG:661) Held Back By Insufficient Growth Even After Shares Climb 29%

Despite an already strong run, China Daye Non-Ferrous Metals Mining Limited (HKG:661) shares have been powering on, with a gain of 29% in the last thirty days. The annual gain comes to 241% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, China Daye Non-Ferrous Metals Mining's price-to-earnings (or "P/E") ratio of 7.3x might still make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 13x and even P/E's above 27x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's exceedingly strong of late, China Daye Non-Ferrous Metals Mining has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

See our latest analysis for China Daye Non-Ferrous Metals Mining

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on China Daye Non-Ferrous Metals Mining's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like China Daye Non-Ferrous Metals Mining's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 109% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that China Daye Non-Ferrous Metals Mining's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From China Daye Non-Ferrous Metals Mining's P/E?

The latest share price surge wasn't enough to lift China Daye Non-Ferrous Metals Mining's P/E close to the market median. 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 China Daye Non-Ferrous Metals Mining maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for China Daye Non-Ferrous Metals Mining (of which 1 is a bit concerning!) you should know about.

Of course, you might also be able to find a better stock than China Daye Non-Ferrous Metals Mining. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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This article by Simply Wall St is general in nature. 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.
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