The MCLON JEWELLERY Co.,Ltd. (SZSE:300945) share price has done very well over the last month, posting an excellent gain of 39%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 19% over that time.

Even after such a large jump in price, there still wouldn't be many who think MCLON JEWELLERYLtd's price-to-earnings (or "P/E") ratio of 34.6x is worth a mention when the median P/E in China is similar at about 34x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

There hasn't been much to differentiate MCLON JEWELLERYLtd's and the market's retreating earnings lately. It seems that few are expecting the company's earnings performance to deviate much from most other companies, which has held the P/E back. You'd much rather the company wasn't bleeding earnings if you still believe in the business. At the very least, you'd be hoping that earnings don't accelerate downwards if your plan is to pick up some stock while it's not in favour.

Does Growth Match The P/E?

In order to justify its P/E ratio, MCLON JEWELLERYLtd would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 1.7% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 28% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 16% per annum as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 19% per annum, which is noticeably more attractive.

With this information, we find it interesting that MCLON JEWELLERYLtd is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From MCLON JEWELLERYLtd's P/E?

MCLON JEWELLERYLtd's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

Our examination of MCLON JEWELLERYLtd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about this 1 warning sign we've spotted with MCLON JEWELLERYLtd.

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.