Jiangyin Electrical Alloy Co.,Ltd (SZSE:300697) shares have had a horrible month, losing 25% after a relatively good period beforehand. The recent drop has obliterated the annual return, with the share price now down 8.8% over that longer period.

Following the heavy fall in price, Jiangyin Electrical AlloyLtd's price-to-earnings (or "P/E") ratio of 22.3x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 54x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Jiangyin Electrical AlloyLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Jiangyin Electrical AlloyLtd

Is There Any Growth For Jiangyin Electrical AlloyLtd?

The only time you'd be truly comfortable seeing a P/E as low as Jiangyin Electrical AlloyLtd's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 37%. The latest three year period has also seen an excellent 44% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 42% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Jiangyin Electrical AlloyLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Jiangyin Electrical AlloyLtd's P/E?

Jiangyin Electrical AlloyLtd's P/E has taken a tumble along with its share price. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Jiangyin Electrical AlloyLtd maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Jiangyin Electrical AlloyLtd (1 shouldn't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on Jiangyin Electrical AlloyLtd, 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.