To the annoyance of some shareholders, Landai Technology Group Corp., Ltd. (SZSE:002765) shares are down a considerable 28% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 50% share price drop.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Landai Technology Group's P/E ratio of 30.7x, since the median price-to-earnings (or "P/E") ratio in China is also close to 30x. 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.

Recent times have been pleasing for Landai Technology Group as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, 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.

View our latest analysis for Landai Technology Group

How Is Landai Technology Group's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 15% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 108% during the coming year according to the three analysts following the company. With the market only predicted to deliver 42%, the company is positioned for a stronger earnings result.

In light of this, it's curious that Landai Technology Group's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Landai Technology Group's P/E

Following Landai Technology Group's share price tumble, its P/E is now hanging on to the median market 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.

Our examination of Landai Technology Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Landai Technology Group (at least 1 which is significant), and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Landai Technology Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.