With a price-to-earnings (or "P/E") ratio of 15.2x Shandong Jinjing Science & Technology Stock Co.,Ltd (SHSE:600586) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 29x and even P/E's higher than 53x 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 limited.

Recent times have been advantageous for Shandong Jinjing Science & Technology StockLtd as its earnings have been rising faster than most other companies. 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 Shandong Jinjing Science & Technology StockLtd's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shandong Jinjing Science & Technology StockLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 83%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 16% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 15% each year over the next three years. With the market predicted to deliver 25% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Shandong Jinjing Science & Technology StockLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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 Shandong Jinjing Science & Technology StockLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Shandong Jinjing Science & Technology StockLtd that you should be aware of.

If you're unsure about the strength of Shandong Jinjing Science & Technology StockLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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