It's not a stretch to say that Hubei Feilihua Quartz Glass Co., Ltd.'s (SZSE:300395) price-to-earnings (or "P/E") ratio of 32.5x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 33x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Hubei Feilihua Quartz Glass hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Hubei Feilihua Quartz Glass' Growth Trending?

In order to justify its P/E ratio, Hubei Feilihua Quartz Glass would need to produce growth that's similar to the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 2.3%. Even so, admirably EPS has lifted 65% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 23% per year over the next three years. With the market predicted to deliver 26% growth per year, the company is positioned for a comparable earnings result.

With this information, we can see why Hubei Feilihua Quartz Glass is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Hubei Feilihua Quartz Glass' P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Hubei Feilihua Quartz Glass' analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Hubei Feilihua Quartz Glass you should be aware of, and 1 of them is a bit concerning.

If you're unsure about the strength of Hubei Feilihua Quartz Glass' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.