What Sino Gas Holdings Group Limited's (HKG:1759) 47% Share Price Gain Is Not Telling You

The Sino Gas Holdings Group Limited (HKG:1759) share price has done very well over the last month, posting an excellent gain of 47%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Since its price has surged higher, given around half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 9x, you may consider Sino Gas Holdings Group as a stock to potentially avoid with its 11.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

The recent earnings growth at Sino Gas Holdings Group would have to be considered satisfactory if not spectacular. One possibility is that the P/E is high because investors think this good earnings growth will be 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.

See our latest analysis for Sino Gas Holdings Group

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sino Gas Holdings Group will help you shine a light on its historical performance.

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

In order to justify its P/E ratio, Sino Gas Holdings Group would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a decent 2.7% gain to the company's bottom line. Still, lamentably EPS has fallen 35% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 22% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's alarming that Sino Gas Holdings Group'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.

What We Can Learn From Sino Gas Holdings Group's P/E?

Sino Gas Holdings Group's P/E is getting right up there since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Sino Gas Holdings Group currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you take the next step, you should know about the 5 warning signs for Sino Gas Holdings Group (3 are a bit unpleasant!) that we have uncovered.

Of course, you might also be able to find a better stock than Sino Gas Holdings Group. 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.