The New Trend International Logis-Tech Co.,Ltd. (SZSE:300532) share price has fared very poorly over the last month, falling by a substantial 27%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 31% share price drop.

Following the heavy fall in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider New Trend International Logis-TechLtd as a highly attractive investment with its 9.4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, New Trend International Logis-TechLtd has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for New Trend International Logis-TechLtd

How Is New Trend International Logis-TechLtd's Growth Trending?

New Trend International Logis-TechLtd's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 77%. The strong recent performance means it was also able to grow EPS by 423% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 42% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that New Trend International Logis-TechLtd is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Having almost fallen off a cliff, New Trend International Logis-TechLtd's share price has pulled its P/E way down as well. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that New Trend International Logis-TechLtd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware New Trend International Logis-TechLtd is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.