Those holding Rayhoo Motor Dies Co.,Ltd. (SZSE:002997) shares would be relieved that the share price has rebounded 34% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Rayhoo Motor DiesLtd's P/E ratio of 33.9x, since the median price-to-earnings (or "P/E") ratio in China is also close to 32x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Rayhoo Motor DiesLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Rayhoo Motor DiesLtd's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 40% last year. As a result, it also grew EPS by 6.9% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 39% as estimated by the four analysts watching the company. That's shaping up to be similar to the 40% growth forecast for the broader market.

In light of this, it's understandable that Rayhoo Motor DiesLtd's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Rayhoo Motor DiesLtd's P/E?

Rayhoo Motor DiesLtd's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

As we suspected, our examination of Rayhoo Motor DiesLtd's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Rayhoo Motor DiesLtd (1 shouldn't be ignored!) that you should be aware of before investing here.

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.