Yahoo Finance Here's What Zijin Mining Group Company Limited's (HKG:2899) P/E Is Telling Us
Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. We'll show how you can use Zijin Mining Group Company Limited's (HKG:2899) P/E ratio to inform your assessment of the investment opportunity. Zijin Mining Group has a price to earnings ratio of 16.40, based on the last twelve months. That is equivalent to an earnings yield of about 6.1%.
Check out our latest analysis for Zijin Mining Group
How Do You Calculate Zijin Mining Group's P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price (in reporting currency) ÷ Earnings per Share (EPS)
Or for Zijin Mining Group:
P/E of 16.40 = HK$2.44 (Note: this is the share price in the reporting currency, namely, CNY ) ÷ HK$0.15 (Based on the trailing twelve months to June 2019.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that buyers have to pay a higher price for each HK$1 the company has earned over the last year. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.
Does Zijin Mining Group Have A Relatively High Or Low P/E For Its Industry?
We can get an indication of market expectations by looking at the P/E ratio. You can see in the image below that the average P/E (10.3) for companies in the metals and mining industry is lower than Zijin Mining Group's P/E.
Zijin Mining Group's P/E tells us that market participants think the company will perform better than its industry peers, going forward. Clearly the market expects growth, but it isn't guaranteed. So investors should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. Earnings growth means that in the future the 'E' will be higher. And in that case, the P/E ratio itself will drop rather quickly. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Zijin Mining Group's earnings per share fell by 24% in the last twelve months. But EPS is up 8.6% over the last 5 years.
Remember: P/E Ratios Don't Consider The Balance Sheet
Don't forget that the P/E ratio considers market capitalization. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.
So What Does Zijin Mining Group's Balance Sheet Tell Us?
Zijin Mining Group's net debt is 54% of its market cap. This is a reasonably significant level of debt -- all else being equal you'd expect a much lower P/E than if it had net cash.
The Verdict On Zijin Mining Group's P/E Ratio
Zijin Mining Group has a P/E of 16.4. That's higher than the average in its market, which is 10.3. With meaningful debt and a lack of recent earnings growth, the market has high expectations that the business will earn more in the future.
Investors should be looking to buy stocks that the market is wrong about. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.
Of course you might be able to find a better stock than Zijin Mining Group. So you may wish to see this free collection of other companies that have grown earnings strongly.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
