Shenzhen Colibri Technologies Co., Ltd. (SZSE:002957) shareholders are no doubt pleased to see that the share price has bounced 33% in the last month, although it is still struggling to make up recently lost ground. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.7% over the last year.

Even after such a large jump in price, Shenzhen Colibri Technologies' price-to-earnings (or "P/E") ratio of 26.4x 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 31x and even P/E's above 56x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Shenzhen Colibri Technologies certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

What Are Growth Metrics Telling Us About The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 256%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 6.4% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 68% as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 39%, which is noticeably less attractive.

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

What We Can Learn From Shenzhen Colibri Technologies' P/E?

Despite Shenzhen Colibri Technologies' shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Shenzhen Colibri Technologies' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shenzhen Colibri Technologies you should know about.

If you're unsure about the strength of Shenzhen Colibri Technologies' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.