Keli Sensing Technology (Ningbo) Co.,Ltd. (SHSE:603662) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Looking at the bigger picture, even after this poor month the stock is up 54% in the last year.

Even after such a large drop in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Keli Sensing Technology (Ningbo)Ltd as an attractive investment with its 27.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Keli Sensing Technology (Ningbo)Ltd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Keli Sensing Technology (Ningbo)Ltd

What Are Growth Metrics Telling Us About 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.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.7% last year. The solid recent performance means it was also able to grow EPS by 6.2% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 51% over the next year. With the market only predicted to deliver 43%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Keli Sensing Technology (Ningbo)Ltd's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

The softening of Keli Sensing Technology (Ningbo)Ltd's shares means its P/E is now sitting at a pretty low level. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Keli Sensing Technology (Ningbo)Ltd currently trades on a much 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 significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Keli Sensing Technology (Ningbo)Ltd (at least 1 which is significant), and understanding these should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.