Despite an already strong run, Shandong Zhonglu Oceanic Fisheries Company Limited (SZSE:200992) shares have been powering on, with a gain of 33% in the last thirty days. Looking further back, the 13% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, Shandong Zhonglu Oceanic Fisheries' price-to-earnings (or "P/E") ratio of 17.4x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 35x and even P/E's above 67x are quite common. 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 Shandong Zhonglu Oceanic Fisheries recently, which is pleasing to see. 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.

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Shandong Zhonglu Oceanic Fisheries' 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 worthy increase of 11%. Pleasingly, EPS has also lifted 673% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 39% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Shandong Zhonglu Oceanic Fisheries is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Shandong Zhonglu Oceanic Fisheries' P/E

Despite Shandong Zhonglu Oceanic Fisheries' shares building up a head of steam, its P/E still lags most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Shandong Zhonglu Oceanic Fisheries revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Shandong Zhonglu Oceanic Fisheries (1 is concerning!) that you should be aware of before investing here.

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.

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.