CWB Automotive Electronics Co., Ltd. (SHSE:605005) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 8.0% isn't as attractive.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about CWB Automotive Electronics' P/E ratio of 31.8x, since the median price-to-earnings (or "P/E") ratio in China is also close to 32x. 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.

Recent times have been advantageous for CWB Automotive Electronics as its earnings have been rising faster than most other companies. 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.

How Is CWB Automotive Electronics' Growth Trending?

CWB Automotive Electronics' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 21% gain to the company's bottom line. As a result, it also grew EPS by 6.8% 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 only analyst covering the company suggest earnings should grow by 30% over the next year. Meanwhile, the rest of the market is forecast to expand by 40%, which is noticeably more attractive.

With this information, we find it interesting that CWB Automotive Electronics is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On CWB Automotive Electronics' P/E

Its shares have lifted substantially and now CWB Automotive Electronics' P/E is also back up to the market median. 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 CWB Automotive Electronics currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for CWB Automotive Electronics you should know about.

You might be able to find a better investment than CWB Automotive Electronics. 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.