Eastern Air Logistics Co., Ltd. (SHSE:601156) shares have had a horrible month, losing 25% after a relatively good period beforehand. Longer-term, the stock has been solid despite a difficult 30 days, gaining 15% in the last year.

Although its price has dipped substantially, Eastern Air Logistics' price-to-earnings (or "P/E") ratio of 10.5x might still make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 28x and even P/E's above 53x 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 so limited.

Eastern Air Logistics could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 Eastern Air Logistics' Growth Trending?

In order to justify its P/E ratio, Eastern Air Logistics would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 14% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 23% per annum during the coming three years according to the six analysts following the company. Meanwhile, the rest of the market is forecast to expand by 24% per year, which is not materially different.

With this information, we find it odd that Eastern Air Logistics 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.

The Bottom Line On Eastern Air Logistics' P/E

Having almost fallen off a cliff, Eastern Air Logistics' share price has pulled its P/E way down as well. 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.

Our examination of Eastern Air Logistics' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Eastern Air Logistics with six simple checks will allow you to discover any risks that could be an issue.

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.

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