The Jinzhou Yongshan Lithium Co., Ltd. (SHSE:603399) share price has fared very poorly over the last month, falling by a substantial 27%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 55% loss during that time.

Since its price has dipped substantially, Jinzhou Yongshan Lithium may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 26x, since almost half of all companies in China have P/E ratios greater than 31x and even P/E's higher than 55x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

The earnings growth achieved at Jinzhou Yongshan Lithium over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. 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.

View our latest analysis for Jinzhou Yongshan Lithium

Is There Any Growth For Jinzhou Yongshan Lithium?

The only time you'd be truly comfortable seeing a P/E as low as Jinzhou Yongshan Lithium'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 16%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 42% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Jinzhou Yongshan Lithium's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Jinzhou Yongshan Lithium's P/E?

Jinzhou Yongshan Lithium's P/E has taken a tumble along with its share price. 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.

As we suspected, our examination of Jinzhou Yongshan Lithium revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 4 warning signs for Jinzhou Yongshan Lithium that we have uncovered.

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.