Hengxing Gold Holding (HKG:2303) shareholders are no doubt pleased to see that the share price has bounced 34% in the last month alone, although it is still down 16% over the last quarter. However, that doesn't change the fact that longer term shareholders might have been mercilessly wrecked by the 69% share price decline throughout the year.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that deep value investors might steer clear when expectations of a company are too high. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
Check out our latest analysis for Hengxing Gold Holding
How Does Hengxing Gold Holding's P/E Ratio Compare To Its Peers?
Hengxing Gold Holding's P/E is 9.31. As you can see below Hengxing Gold Holding has a P/E ratio that is fairly close for the average for the metals and mining industry, which is 9.7.
That indicates that the market expects Hengxing Gold Holding will perform roughly in line with other companies in its industry. If the company has better than average prospects, then the market might be underestimating it. Further research into factors such as insider buying and selling, could help you form your own view on whether that is likely.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. That means unless the share price increases, the P/E will reduce in a few years. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
Hengxing Gold Holding saw earnings per share decrease by 18% last year. But over the longer term (3 years), earnings per share have increased by 1.8%.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
Don't forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.