Despite an already strong run, Shenzhen Transsion Holdings Co., Ltd. (SHSE:688036) shares have been powering on, with a gain of 35% in the last thirty days. Unfortunately, despite the strong performance over the last month, the full year gain of 3.7% isn't as attractive.

Although its price has surged higher, Shenzhen Transsion Holdings' price-to-earnings (or "P/E") ratio of 19.4x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 58x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Shenzhen Transsion Holdings has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 115% gain to the company's bottom line. Pleasingly, EPS has also lifted 87% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 9.1% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 19% per annum growth forecast for the broader market.

With this information, we can see why Shenzhen Transsion Holdings is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

The latest share price surge wasn't enough to lift Shenzhen Transsion Holdings' 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 Shenzhen Transsion Holdings maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Shenzhen Transsion Holdings (1 is concerning!) that we have uncovered.

Of course, you might also be able to find a better stock than Shenzhen Transsion Holdings. 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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