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China Daye Non-Ferrous Metals Mining Limited (HKG:661) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. But the gains over the last month weren’t enough to make shareholders whole, as the share price is still down 4.5% in the last twelve months.

Since its price has surged higher, China Daye Non-Ferrous Metals Mining may be sending very bearish signals at the moment with a price-to-earnings (or “P/E”) ratio of 13.5x, since almost half of all companies in Hong Kong have P/E ratios under 8x and even P/E’s lower than 4x 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.

As an illustration, earnings have deteriorated at China Daye Non-Ferrous Metals Mining over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for China Daye Non-Ferrous Metals Mining

SEHK:661 Price to Earnings Ratio vs Industry March 10th 2024

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on China Daye Non-Ferrous Metals Mining will help you shine a light on its historical performance.

Does Growth Match The High P/E?

China Daye Non-Ferrous Metals Mining’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.

Taking a look back first, the company’s earnings per share growth last year wasn’t something to get excited about as it posted a disappointing decline of 63%. As a result, earnings from three years ago have also fallen 41% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 23% growth in the next 12 months, the company’s downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that China Daye Non-Ferrous Metals Mining is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren’t willing to let go of their stock at any price. There’s a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On China Daye Non-Ferrous Metals Mining’s P/E

The strong share price surge has got China Daye Non-Ferrous Metals Mining’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.

We’ve established that China Daye Non-Ferrous Metals Mining currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders’ investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we’ve discovered 3 warning signs for China Daye Non-Ferrous Metals Mining (2 don’t sit too well with us!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on China Daye Non-Ferrous Metals Mining, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we’re helping make it simple.

Find out whether China Daye Non-Ferrous Metals Mining is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.

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