It's not a stretch to say that TDG Holding Co., Ltd.'s (SHSE:600330) price-to-earnings (or "P/E") ratio of 35.2x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 34x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings that are retreating more than the market's of late, TDG Holding has been very sluggish. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for TDG Holding

Is There Some Growth For TDG Holding?

In order to justify its P/E ratio, TDG Holding would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 66% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 33% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 66% over the next year. Meanwhile, the rest of the market is forecast to only expand by 44%, which is noticeably less attractive.

With this information, we find it interesting that TDG Holding is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On TDG Holding'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.

We've established that TDG Holding currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market 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.

There are also other vital risk factors to consider before investing and we've discovered 4 warning signs for TDG Holding that you should be aware of.

If you're unsure about the strength of TDG Holding'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.