GigaCloud Technology Inc. (NASDAQ:GCT) shares have had a horrible month, losing 27% after a relatively good period beforehand. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 19%.

In spite of the heavy fall in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may still consider GigaCloud Technology as a highly attractive investment with its 5.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's superior to most other companies of late, GigaCloud Technology has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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?

There's an inherent assumption that a company should far underperform the market for P/E ratios like GigaCloud Technology's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 107% last year. The latest three year period has also seen an excellent 37% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 11% over the next year. With the market predicted to deliver 15% growth , the company is positioned for a weaker earnings result.

With this information, we can see why GigaCloud Technology is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On GigaCloud Technology's P/E

GigaCloud Technology's P/E looks about as weak as its stock price lately. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that GigaCloud Technology maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for GigaCloud Technology that we have uncovered.

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.