Despite an already strong run, Jiangsu Seagull Cooling Tower Co.,Ltd. (SHSE:603269) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days bring the annual gain to a very sharp 38%.

In spite of the firm bounce in price, Jiangsu Seagull Cooling TowerLtd's price-to-earnings (or "P/E") ratio of 28.1x might still 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 33x and even P/E's above 61x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's superior to most other companies of late, Jiangsu Seagull Cooling TowerLtd has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

How Is Jiangsu Seagull Cooling TowerLtd's Growth Trending?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 15% last year. Pleasingly, EPS has also lifted 64% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 44% each year during the coming three years according to the one analyst following the company. With the market only predicted to deliver 26% each year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Jiangsu Seagull Cooling TowerLtd's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Jiangsu Seagull Cooling TowerLtd's P/E?

Jiangsu Seagull Cooling TowerLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Jiangsu Seagull Cooling TowerLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

It is also worth noting that we have found 3 warning signs for Jiangsu Seagull Cooling TowerLtd that you need to take into consideration.

Of course, you might also be able to find a better stock than Jiangsu Seagull Cooling TowerLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.