Xinyi Glass Holdings Limited (HKG:868) shareholders have had their patience rewarded with a 27% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 15% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Xinyi Glass Holdings' price-to-earnings (or "P/E") ratio of 7.9x is worth a mention when the median P/E in Hong Kong is similar at about 10x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent earnings growth for Xinyi Glass Holdings has been in line with the market. It seems that many are expecting the mediocre earnings performance to persist, which has held the P/E back. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

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

Xinyi Glass Holdings' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. This isn't what shareholders were looking for as it means they've been left with a 20% decline in EPS over the last three years in total. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 1.9% per year as estimated by the twelve analysts watching the company. With the market predicted to deliver 16% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's curious that Xinyi Glass Holdings' P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

Its shares have lifted substantially and now Xinyi Glass Holdings' P/E is also back up to the market median. 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.

Our examination of Xinyi Glass Holdings' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 2 warning signs for Xinyi Glass Holdings that you need to take into consideration.

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 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.