Shanghai Geoharbour Construction Group Co., Ltd.'s (SHSE:605598) price-to-earnings (or "P/E") ratio of 25.9x might 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 32x and even P/E's above 59x 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.

With earnings growth that's superior to most other companies of late, Shanghai Geoharbour Construction Group has been doing relatively well. 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.

How Is Shanghai Geoharbour Construction Group's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shanghai Geoharbour Construction Group's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 117% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 26% each year as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 21% per annum, which is noticeably less attractive.

In light of this, it's peculiar that Shanghai Geoharbour Construction Group's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Shanghai Geoharbour Construction Group's P/E?

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 Shanghai Geoharbour Construction Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Shanghai Geoharbour Construction Group with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than Shanghai Geoharbour Construction Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.