Hangzhou Star Shuaier Electric Appliance Co., Ltd. (SZSE:002860) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Hangzhou Star Shuaier Electric Appliance as an attractive investment with its 16.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Hangzhou Star Shuaier Electric Appliance has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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.

How Is Hangzhou Star Shuaier Electric Appliance's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Hangzhou Star Shuaier Electric Appliance's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 61% last year. The strong recent performance means it was also able to grow EPS by 66% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 45% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 40%, which is noticeably less attractive.

In light of this, it's peculiar that Hangzhou Star Shuaier Electric Appliance's 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 Hangzhou Star Shuaier Electric Appliance's P/E?

Hangzhou Star Shuaier Electric Appliance's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Hangzhou Star Shuaier Electric Appliance'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. 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. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Hangzhou Star Shuaier Electric Appliance.

Of course, you might also be able to find a better stock than Hangzhou Star Shuaier Electric Appliance. 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.