ShenZhen Woer Heat-Shrinkable Material Co.,Ltd. (SZSE:002130) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 7.6% isn't as attractive.

Although its price has surged higher, ShenZhen Woer Heat-Shrinkable MaterialLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.7x, since almost half of all companies in China have P/E ratios greater than 32x and even P/E's higher than 59x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for ShenZhen Woer Heat-Shrinkable MaterialLtd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

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

In order to justify its P/E ratio, ShenZhen Woer Heat-Shrinkable MaterialLtd would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 14% last year. Pleasingly, EPS has also lifted 82% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 25% as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 40%, which is noticeably more attractive.

In light of this, it's understandable that ShenZhen Woer Heat-Shrinkable MaterialLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From ShenZhen Woer Heat-Shrinkable MaterialLtd's P/E?

ShenZhen Woer Heat-Shrinkable MaterialLtd's recent share price jump still sees its P/E sitting firmly flat on the ground. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of ShenZhen Woer Heat-Shrinkable MaterialLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for ShenZhen Woer Heat-Shrinkable MaterialLtd with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.