Jiangsu Yunyi Electric Co.,Ltd. (SZSE:300304) shares have continued their recent momentum with a 25% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 61%.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Jiangsu Yunyi ElectricLtd as an attractive investment with its 20x P/E ratio. 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 exceedingly strong of late, Jiangsu Yunyi ElectricLtd has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Is There Any Growth For Jiangsu Yunyi ElectricLtd?

In order to justify its P/E ratio, Jiangsu Yunyi ElectricLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 57% gain to the company's bottom line. The latest three year period has also seen an excellent 55% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 39% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Jiangsu Yunyi ElectricLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Jiangsu Yunyi ElectricLtd's P/E

The latest share price surge wasn't enough to lift Jiangsu Yunyi ElectricLtd's P/E close to the market median. 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 Jiangsu Yunyi ElectricLtd maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Jiangsu Yunyi ElectricLtd has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

Of course, you might also be able to find a better stock than Jiangsu Yunyi ElectricLtd. 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.