When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may consider Zhejiang Sanhua Intelligent Controls Co.,Ltd (SZSE:002050) as an attractive investment with its 25.3x 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.

Zhejiang Sanhua Intelligent ControlsLtd 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.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Zhejiang Sanhua Intelligent ControlsLtd would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 49% last year. The latest three year period has also seen an excellent 111% overall rise in EPS, aided by its short-term performance. 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 16% as estimated by the analysts watching the company. That's shaping up to be materially lower than the 36% growth forecast for the broader market.

In light of this, it's understandable that Zhejiang Sanhua Intelligent ControlsLtd'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.

The Bottom Line On Zhejiang Sanhua Intelligent ControlsLtd's P/E

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.

We've established that Zhejiang Sanhua Intelligent ControlsLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Zhejiang Sanhua Intelligent ControlsLtd you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.