Jiangsu Boiln Plastics Co., Ltd. (SZSE:301003) shareholders would be excited to see that the share price has had a great month, posting a 35% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 5.2% isn't as impressive.

Even after such a large jump in price, Jiangsu Boiln Plastics may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.8x, since almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 64x 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.

Recent times have been pleasing for Jiangsu Boiln Plastics as its earnings have risen in spite of the market's earnings going into reverse. 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?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 36% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 23% drop in EPS in aggregate. 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 18% per annum during the coming three years according to the one analyst following the company. Meanwhile, the rest of the market is forecast to expand by 19% per year, which is not materially different.

In light of this, it's peculiar that Jiangsu Boiln Plastics' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Jiangsu Boiln Plastics' P/E?

The latest share price surge wasn't enough to lift Jiangsu Boiln Plastics' P/E close to the market median. 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 Jiangsu Boiln Plastics currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Jiangsu Boiln Plastics (1 can't be ignored) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.