Luoyang Xinqianglian Slewing Bearing Co., Ltd. (SZSE:300850) shareholders are no doubt pleased to see that the share price has bounced 33% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 51% share price decline over the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Luoyang Xinqianglian Slewing Bearing's price-to-earnings (or "P/E") ratio of 28.7x is worth a mention when the median P/E in China is similar at about 30x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings that are retreating more than the market's of late, Luoyang Xinqianglian Slewing Bearing has been very sluggish. One possibility is that the P/E is moderate because investors think the company's earnings trend will eventually fall in line with most others in the market. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Luoyang Xinqianglian Slewing Bearing's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 28% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 28% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 46% as estimated by the sole analyst watching the company. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.

In light of this, it's curious that Luoyang Xinqianglian Slewing Bearing's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Luoyang Xinqianglian Slewing Bearing's P/E

Luoyang Xinqianglian Slewing Bearing appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 Luoyang Xinqianglian Slewing Bearing 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.

Plus, you should also learn about these 4 warning signs we've spotted with Luoyang Xinqianglian Slewing Bearing (including 2 which can't be ignored).

You might be able to find a better investment than Luoyang Xinqianglian Slewing Bearing. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.