With a price-to-earnings (or "P/E") ratio of 18.4x Zhejiang Qianjiang Motorcycle Co., Ltd. (SZSE:000913) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 36x and even P/E's higher than 70x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for Zhejiang Qianjiang Motorcycle as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

How Is Zhejiang Qianjiang Motorcycle's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Zhejiang Qianjiang Motorcycle's 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 terrific increase of 15%. The strong recent performance means it was also able to grow EPS by 75% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 41% as estimated by the four analysts watching the company. With the market predicted to deliver 38% growth , the company is positioned for a comparable earnings result.

With this information, we find it odd that Zhejiang Qianjiang Motorcycle is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Zhejiang Qianjiang Motorcycle'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.

Our examination of Zhejiang Qianjiang Motorcycle's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

It is also worth noting that we have found 1 warning sign for Zhejiang Qianjiang Motorcycle that you need to take into consideration.

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

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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.