Lingbao Gold Group Company Ltd.'s (HKG:3330) P/E Is Still On The Mark Following 28% Share Price Bounce

Lingbao Gold Group Company Ltd. (HKG:3330) shares have had a really impressive month, gaining 28% after a shaky period beforehand. This latest share price bounce rounds out a remarkable 571% gain over the last twelve months.

Since its price has surged higher, given close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 12x, you may consider Lingbao Gold Group as a stock to avoid entirely with its 19.2x 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.

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With earnings growth that's superior to most other companies of late, Lingbao Gold Group has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Lingbao Gold Group

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How Is Lingbao Gold Group's Growth Trending?

Lingbao Gold Group's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 238% gain to the company's bottom line. Pleasingly, EPS has also lifted 200% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 30% each year as estimated by the two analysts watching the company. With the market only predicted to deliver 14% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Lingbao Gold Group's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

The strong share price surge has got Lingbao Gold Group's P/E rushing to great heights as well. 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.

As we suspected, our examination of Lingbao Gold Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Lingbao Gold Group is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Lingbao Gold Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.