Zhengzhou Qianweiyangchu Food Co., Ltd. (SZSE:001215) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. But the last month did very little to improve the 50% share price decline over the last year.

Even after such a large jump in price, Zhengzhou Qianweiyangchu Food may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 20.8x, since almost half of all companies in China have P/E ratios greater than 29x and even P/E's higher than 54x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Zhengzhou Qianweiyangchu Food 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 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 out of favour.

How Is Zhengzhou Qianweiyangchu Food's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Zhengzhou Qianweiyangchu Food's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 12% last year. Still, lamentably EPS has fallen 1.9% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 13% per year during the coming three years according to the eleven analysts following the company. Meanwhile, the rest of the market is forecast to expand by 19% per year, which is noticeably more attractive.

With this information, we can see why Zhengzhou Qianweiyangchu Food is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Zhengzhou Qianweiyangchu Food's P/E?

The latest share price surge wasn't enough to lift Zhengzhou Qianweiyangchu Food's P/E close 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 Zhengzhou Qianweiyangchu Food maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Zhengzhou Qianweiyangchu Food that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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