When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 36x, you may consider Jiangsu Yuyue Medical Equipment & Supply Co., Ltd. (SZSE:002223) as an attractive investment with its 20.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings that are retreating more than the market's of late, Jiangsu Yuyue Medical Equipment & Supply has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

How Is Jiangsu Yuyue Medical Equipment & Supply's Growth Trending?

In order to justify its P/E ratio, Jiangsu Yuyue Medical Equipment & Supply would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's bottom line. Regardless, EPS has managed to lift by a handy 8.1% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 32% as estimated by the eleven analysts watching the company. That's shaping up to be materially lower than the 40% growth forecast for the broader market.

With this information, we can see why Jiangsu Yuyue Medical Equipment & Supply 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.

What We Can Learn From Jiangsu Yuyue Medical Equipment & Supply's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Jiangsu Yuyue Medical Equipment & Supply's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Jiangsu Yuyue Medical Equipment & Supply is showing 1 warning sign in our investment analysis, you should know about.

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.