Suzhou Hailu Heavy Industry Co.,Ltd (SZSE:002255) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Suzhou Hailu Heavy IndustryLtd as a highly attractive investment with its 12x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Earnings have risen firmly for Suzhou Hailu Heavy IndustryLtd recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Is There Any Growth For Suzhou Hailu Heavy IndustryLtd?

The only time you'd be truly comfortable seeing a P/E as depressed as Suzhou Hailu Heavy IndustryLtd's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a worthy increase of 9.1%. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 40% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Suzhou Hailu Heavy IndustryLtd is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Suzhou Hailu Heavy IndustryLtd's P/E

Even after such a strong price move, Suzhou Hailu Heavy IndustryLtd's P/E still trails the rest of the market significantly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Suzhou Hailu Heavy IndustryLtd 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Suzhou Hailu Heavy IndustryLtd with six simple checks.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.