China Resources Mixc Lifestyle Services Limited's (HKG:1209) Shares Climb 30% But Its Business Is Yet to Catch Up

China Resources Mixc Lifestyle Services Limited (HKG:1209) shareholders have had their patience rewarded with a 30% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 6.8% isn't as impressive.

Following the firm bounce in price, given close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 9x, you may consider China Resources Mixc Lifestyle Services as a stock to avoid entirely with its 19x 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.

Recent times have been advantageous for China Resources Mixc Lifestyle Services as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for China Resources Mixc Lifestyle Services

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Resources Mixc Lifestyle Services.

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

There's an inherent assumption that a company should far outperform the market for P/E ratios like China Resources Mixc Lifestyle Services' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 33%. Pleasingly, EPS has also lifted 134% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 13% per annum during the coming three years according to the analysts following the company. That's shaping up to be similar to the 13% per year growth forecast for the broader market.

In light of this, it's curious that China Resources Mixc Lifestyle Services' P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On China Resources Mixc Lifestyle Services' P/E

China Resources Mixc Lifestyle Services' P/E is flying high just like its stock has during the last month. 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 China Resources Mixc Lifestyle Services' analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for China Resources Mixc Lifestyle Services with six simple checks on some of these key factors.

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

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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.