Tongling Jingda Special Magnet Wire Co., Ltd. (SHSE:600577) shares have had a really impressive month, gaining 32% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.

Even after such a large jump in price, Tongling Jingda Special Magnet Wire's price-to-earnings (or "P/E") ratio of 24.1x 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 28x and even P/E's above 53x 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.

With earnings growth that's superior to most other companies of late, Tongling Jingda Special Magnet Wire has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is Tongling Jingda Special Magnet Wire's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Tongling Jingda Special Magnet Wire's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 15% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 15% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 15% per year over the next three years. That's shaping up to be materially lower than the 24% per annum growth forecast for the broader market.

With this information, we can see why Tongling Jingda Special Magnet Wire is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Tongling Jingda Special Magnet Wire's P/E?

The latest share price surge wasn't enough to lift Tongling Jingda Special Magnet Wire's P/E close to the market median. 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 Tongling Jingda Special Magnet Wire maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - Tongling Jingda Special Magnet Wire has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Tongling Jingda Special Magnet Wire, 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.