Qingmu Digital Technology Co.,Ltd. (SZSE:301110) shares have continued their recent momentum with a 35% gain in the last month alone. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.8% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Qingmu Digital TechnologyLtd's price-to-earnings (or "P/E") ratio of 34.7x is worth a mention when the median P/E in China is similar at about 35x. 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.

For example, consider that Qingmu Digital TechnologyLtd's financial performance has been poor lately as it's earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Qingmu Digital TechnologyLtd

How Is Qingmu Digital TechnologyLtd's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 25% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 88% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that Qingmu Digital TechnologyLtd's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On Qingmu Digital TechnologyLtd's P/E

Qingmu Digital TechnologyLtd's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

We've established that Qingmu Digital TechnologyLtd currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You need to take note of risks, for example - Qingmu Digital TechnologyLtd has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

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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.