Shenzhen Liande Automation Equipment co.,ltd. (SZSE:300545) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. Still, a bad month hasn't completely ruined the past year with the stock gaining 41%, which is great even in a bull market.

Although its price has dipped substantially, there still wouldn't be many who think Shenzhen Liande Automation Equipmentltd's price-to-earnings (or "P/E") ratio of 29.4x is worth a mention when the median P/E in China is similar at about 31x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's exceedingly strong of late, Shenzhen Liande Automation Equipmentltd has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for Shenzhen Liande Automation Equipmentltd

Does Growth Match The P/E?

In order to justify its P/E ratio, Shenzhen Liande Automation Equipmentltd would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 231%. The strong recent performance means it was also able to grow EPS by 72% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 42% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's curious that Shenzhen Liande Automation Equipmentltd's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Key Takeaway

Following Shenzhen Liande Automation Equipmentltd's share price tumble, its P/E is now hanging on to the median market P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Shenzhen Liande Automation Equipmentltd revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shenzhen Liande Automation Equipmentltd you should know about.

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.