When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Qingdao Hiron Commercial Cold Chain Co., Ltd. (SHSE:603187) as an attractive investment with its 15.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

The earnings growth achieved at Qingdao Hiron Commercial Cold Chain 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 that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

How Is Qingdao Hiron Commercial Cold Chain's Growth Trending?

In order to justify its P/E ratio, Qingdao Hiron Commercial Cold Chain would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 14%. The solid recent performance means it was also able to grow EPS by 18% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 41% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Qingdao Hiron Commercial Cold Chain'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.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Qingdao Hiron Commercial Cold Chain maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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 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 1 warning sign for Qingdao Hiron Commercial Cold Chain that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.