Even With A 26% Surge, Cautious Investors Are Not Rewarding Lygend Resources & Technology Co., Ltd.'s (HKG:2245) Performance Completely

Lygend Resources & Technology Co., Ltd. (HKG:2245) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last month tops off a massive increase of 204% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Lygend Resources & Technology's price-to-earnings (or "P/E") ratio of 12x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 12x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Recent times have been advantageous for Lygend Resources & Technology as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Lygend Resources & Technology

Want the full picture on analyst estimates for the company? Then our free report on Lygend Resources & Technology will help you uncover what's on the horizon.

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

Lygend Resources & Technology's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 101%. However, this wasn't enough as the latest three year period has seen a very unpleasant 25% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 26% over the next year. With the market only predicted to deliver 21%, the company is positioned for a stronger earnings result.

In light of this, it's curious that Lygend Resources & Technology's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Lygend Resources & Technology appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Lygend Resources & Technology's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 3 warning signs for Lygend Resources & Technology that you need to take into consideration.

Of course, you might also be able to find a better stock than Lygend Resources & Technology. 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.