It's not a stretch to say that Chengdu Jiafaantai Education Technology Co.,Ltd.'s (SZSE:300559) price-to-earnings (or "P/E") ratio of 28.8x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 29x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been advantageous for Chengdu Jiafaantai Education TechnologyLtd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

Is There Some Growth For Chengdu Jiafaantai Education TechnologyLtd?

There's an inherent assumption that a company should be matching the market for P/E ratios like Chengdu Jiafaantai Education TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 139% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 28% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 30% each year over the next three years. With the market only predicted to deliver 25% per annum, the company is positioned for a stronger earnings result.

In light of this, it's curious that Chengdu Jiafaantai Education TechnologyLtd's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Chengdu Jiafaantai Education TechnologyLtd's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Chengdu Jiafaantai Education TechnologyLtd currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 1 warning sign for Chengdu Jiafaantai Education TechnologyLtd that you need to take into consideration.

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.