The Shenyang Jinbei Automotive Company Limited (SHSE:600609) share price has fared very poorly over the last month, falling by a substantial 26%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 20% in that time.

Since its price has dipped substantially, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider Shenyang Jinbei Automotive as an attractive investment with its 22.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Shenyang Jinbei Automotive certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong 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.

How Is Shenyang Jinbei Automotive's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shenyang Jinbei Automotive's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 121% gain to the company's bottom line. The latest three year period has also seen an excellent 198% 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's about the same on an annualised basis.

In light of this, it's peculiar that Shenyang Jinbei Automotive's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.

What We Can Learn From Shenyang Jinbei Automotive's P/E?

Shenyang Jinbei Automotive'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.

We've established that Shenyang Jinbei Automotive currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Shenyang Jinbei Automotive with six simple checks on some of these key factors.

If you're unsure about the strength of Shenyang Jinbei Automotive's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.