Chifeng Jilong Gold Mining Co.,Ltd. (SHSE:600988) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 9.9% over the last year.

Following the firm bounce in price, Chifeng Jilong Gold MiningLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 47.3x, since almost half of all companies in China have P/E ratios under 30x and even P/E's lower than 18x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With earnings growth that's superior to most other companies of late, Chifeng Jilong Gold MiningLtd has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

How Is Chifeng Jilong Gold MiningLtd's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Chifeng Jilong Gold MiningLtd's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 33% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 93% during the coming year according to the ten analysts following the company. With the market only predicted to deliver 39%, the company is positioned for a stronger earnings result.

With this information, we can see why Chifeng Jilong Gold MiningLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Shares in Chifeng Jilong Gold MiningLtd have built up some good momentum lately, which has really inflated its 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 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. It's hard to see the share price falling strongly in the near future under these circumstances.

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 you're unsure about the strength of Chifeng Jilong Gold MiningLtd'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.