When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider Keli Sensing Technology (Ningbo) Co.,Ltd. (SHSE:603662) as an attractive investment with its 24.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Keli Sensing Technology (Ningbo)Ltd has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Does Growth Match The Low P/E?

Keli Sensing Technology (Ningbo)Ltd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a decent 5.4% gain to the company's bottom line. The latest three year period has also seen a 11% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the two analysts watching the company. With the market predicted to deliver 24% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Keli Sensing Technology (Ningbo)Ltd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Keli Sensing Technology (Ningbo)Ltd'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.

As we suspected, our examination of Keli Sensing Technology (Ningbo)Ltd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Keli Sensing Technology (Ningbo)Ltd that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.