The Eaglerise Electric & Electronic (China) Co., Ltd (SZSE:002922) share price has softened a substantial 27% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term, the stock has been solid despite a difficult 30 days, gaining 21% in the last year.

Even after such a large drop in price, it's still not a stretch to say that Eaglerise Electric & Electronic (China)'s price-to-earnings (or "P/E") ratio of 28.4x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 29x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, Eaglerise Electric & Electronic (China) has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Eaglerise Electric & Electronic (China)'s 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.

Taking a look back first, we see that the company grew earnings per share by an impressive 24% 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.

Turning to the outlook, the next three years should generate growth of 27% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 24% per year, which is not materially different.

With this information, we can see why Eaglerise Electric & Electronic (China) is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Eaglerise Electric & Electronic (China)'s P/E?

Eaglerise Electric & Electronic (China)'s plummeting stock price has brought its P/E right back to the rest of the market. 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 Eaglerise Electric & Electronic (China) maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. 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. Unless these conditions change, they will continue to support the share price at these levels.

Plus, you should also learn about these 4 warning signs we've spotted with Eaglerise Electric & Electronic (China) (including 1 which shouldn't be ignored).

Of course, you might also be able to find a better stock than Eaglerise Electric & Electronic (China). 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com