When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 34x, you may consider Chifeng Jilong Gold Mining Co.,Ltd. (SHSE:600988) as a stock to potentially avoid with its 40.4x 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.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Chifeng Jilong Gold MiningLtd has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for Chifeng Jilong Gold MiningLtd
Is There Enough Growth For Chifeng Jilong Gold MiningLtd?
Chifeng Jilong Gold MiningLtd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.
Retrospectively, the last year delivered an exceptional 33% gain to the company's bottom line. 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.
Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 91% over the next year. That's shaping up to be materially higher than the 44% growth forecast for the broader market.
With this information, we can see why Chifeng Jilong Gold MiningLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
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 Chifeng Jilong Gold MiningLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
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 Chifeng Jilong Gold MiningLtd with six simple checks.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.