Mongolian Mining Corporation's (HKG:975) Shares Bounce 39% But Its Business Still Trails The Market

The Mongolian Mining Corporation (HKG:975) share price has done very well over the last month, posting an excellent gain of 39%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.1% in the last twelve months.

In spite of the firm bounce in price, Mongolian Mining may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4.8x, since almost half of all companies in Hong Kong have P/E ratios greater than 12x and even P/E's higher than 26x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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We'd have to say that with no tangible growth over the last year, Mongolian Mining's earnings have been unimpressive. It might be that many expect the uninspiring earnings performance to worsen, which has repressed the P/E. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for Mongolian 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 Mongolian Mining's earnings, revenue and cash flow.

Is There Any Growth For Mongolian Mining?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Mongolian Mining's to be considered reasonable.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. The longer-term trend has been no better as the company has no earnings growth to show for over the last three years either. So it seems apparent to us that the company has struggled to grow earnings meaningfully over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 19% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Mongolian 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.

The Bottom Line On Mongolian Mining's P/E

Shares in Mongolian Mining are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 Mongolian 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Mongolian Mining with six simple checks.

If you're unsure about the strength of Mongolian 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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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.