Despite an already strong run, Zhuhai Huajin Capital Co., Ltd. (SZSE:000532) shares have been powering on, with a gain of 26% in the last thirty days. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Zhuhai Huajin Capital may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 27.1x, since almost half of all companies in China have P/E ratios greater than 33x and even P/E's higher than 62x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Earnings have risen firmly for Zhuhai Huajin Capital recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. 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.

Is There Any Growth For Zhuhai Huajin Capital?

In order to justify its P/E ratio, Zhuhai Huajin Capital would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Zhuhai Huajin Capital's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Zhuhai Huajin Capital's P/E

Zhuhai Huajin Capital's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Zhuhai Huajin Capital 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Zhuhai Huajin Capital that 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.