With a price-to-earnings (or "P/E") ratio of 15.2x Anhui Yingjia Distillery Co., Ltd. (SHSE:603198) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 27x and even P/E's higher than 51x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Anhui Yingjia Distillery certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is Anhui Yingjia Distillery's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Anhui Yingjia Distillery's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. Pleasingly, EPS has also lifted 116% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 18% per year as estimated by the eleven analysts watching the company. That's shaping up to be similar to the 20% per annum growth forecast for the broader market.

With this information, we find it odd that Anhui Yingjia Distillery is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Anhui Yingjia Distillery's P/E?

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.

We've established that Anhui Yingjia Distillery currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. 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 this 1 warning sign we've spotted with Anhui Yingjia Distillery.

You might be able to find a better investment than Anhui Yingjia Distillery. 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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