Jinyu Bio-technology Co., Ltd. (SHSE:600201) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 20% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Jinyu Bio-technology's price-to-earnings (or "P/E") ratio of 30.1x is worth a mention when the median P/E in China is similar at about 30x. 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.

Jinyu Bio-technology certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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.

What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, Jinyu Bio-technology would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 19% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 40% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 23% each year over the next three years. With the market predicted to deliver 25% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's understandable that Jinyu Bio-technology's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Jinyu Bio-technology's P/E

With its share price falling into a hole, the P/E for Jinyu Bio-technology looks quite average now. 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.

As we suspected, our examination of Jinyu Bio-technology's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Jinyu Bio-technology that you should be aware of.

You might be able to find a better investment than Jinyu Bio-technology. 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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