When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may consider Shandong Zhangqiu Blower Co., Ltd (SZSE:002598) as an attractive investment with its 24.1x 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.

Shandong Zhangqiu Blower has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the respectable earnings performance to degrade, which has repressed the P/E. If you 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.

View our latest analysis for Shandong Zhangqiu Blower

Is There Any Growth For Shandong Zhangqiu Blower?

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

If we review the last year of earnings growth, the company posted a worthy increase of 6.8%. Pleasingly, EPS has also lifted 34% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 42% over the next year, materially higher than the company's recent medium-term annualised growth rates.

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

The Bottom Line On Shandong Zhangqiu Blower's P/E

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.

We've established that Shandong Zhangqiu Blower maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Shandong Zhangqiu Blower that you should be aware of.

If these risks are making you reconsider your opinion on Shandong Zhangqiu Blower, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.