China Vanadium Titano-Magnetite Mining Company Limited's (HKG:893) Shares May Have Run Too Fast Too Soon

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 11x, you may consider China Vanadium Titano-Magnetite Mining Company Limited (HKG:893) as a stock to avoid entirely with its 22.2x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For example, consider that China Vanadium Titano-Magnetite Mining's financial performance has been poor lately as it's earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for China Vanadium Titano-Magnetite Mining

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

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

In order to justify its P/E ratio, China Vanadium Titano-Magnetite Mining would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 6.7%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that China Vanadium Titano-Magnetite Mining's P/E sits above the majority of other companies. 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 China Vanadium Titano-Magnetite Mining's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that China Vanadium Titano-Magnetite Mining currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 2 warning signs for China Vanadium Titano-Magnetite Mining that you should be aware of.

If you're unsure about the strength of China Vanadium Titano-Magnetite Mining'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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