HUANLEJIA Food Group CO.,Ltd (SZSE:300997) shares have continued their recent momentum with a 28% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 6.8% isn't as attractive.

Even after such a large jump in price, there still wouldn't be many who think HUANLEJIA Food GroupLtd's price-to-earnings (or "P/E") ratio of 34.4x is worth a mention when the median P/E in China is similar at about 35x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings that are retreating more than the market's of late, HUANLEJIA Food GroupLtd has been very sluggish. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

How Is HUANLEJIA Food GroupLtd's Growth Trending?

In order to justify its P/E ratio, HUANLEJIA Food GroupLtd would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 27% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 9.4% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 10% during the coming year according to the two analysts following the company. With the market predicted to deliver 39% growth , the company is positioned for a weaker earnings result.

With this information, we find it interesting that HUANLEJIA Food GroupLtd is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On HUANLEJIA Food GroupLtd's P/E

HUANLEJIA Food GroupLtd appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of HUANLEJIA Food GroupLtd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for HUANLEJIA Food GroupLtd that you should be aware of.

You might be able to find a better investment than HUANLEJIA Food GroupLtd. 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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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.