When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 34x, you may consider Eaglerise Electric & Electronic (China) Co., Ltd (SZSE:002922) as an attractive investment with its 28.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Eaglerise Electric & Electronic (China) certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

See our latest analysis for Eaglerise Electric & Electronic (China)

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Eaglerise Electric & Electronic (China)'s is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 32%. The latest three year period has also seen an excellent 134% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 13% during the coming year according to the one analyst following the company. Meanwhile, the rest of the market is forecast to expand by 43%, which is noticeably more attractive.

In light of this, it's understandable that Eaglerise Electric & Electronic (China)'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 Bottom Line On Eaglerise Electric & Electronic (China)'s P/E

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 Eaglerise Electric & Electronic (China) 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 3 warning signs for Eaglerise Electric & Electronic (China) (1 doesn't sit too well with us) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.