The SINOPEC Engineering (Group) Co., Ltd. (HKG:2386) share price has done very well over the last month, posting an excellent gain of 26%. Looking back a bit further, it's encouraging to see the stock is up 66% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about SINOPEC Engineering (Group)'s P/E ratio of 11.6x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 10x. 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.

With earnings growth that's superior to most other companies of late, SINOPEC Engineering (Group) has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for SINOPEC Engineering (Group)

Keen to find out how analysts think SINOPEC Engineering (Group)'s future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Growth For SINOPEC Engineering (Group)?

There's an inherent assumption that a company should be matching the market for P/E ratios like SINOPEC Engineering (Group)'s to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.3% last year. Still, lamentably EPS has fallen 4.7% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 11% each year during the coming three years according to the seven analysts following the company. With the market predicted to deliver 12% growth each year, the company is positioned for a comparable earnings result.

With this information, we can see why SINOPEC Engineering (Group) is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From SINOPEC Engineering (Group)'s P/E?

Its shares have lifted substantially and now SINOPEC Engineering (Group)'s 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.

As we suspected, our examination of SINOPEC Engineering (Group)'s analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for SINOPEC Engineering (Group) (1 is a bit unpleasant!) that you need to be mindful of.

If these risks are making you reconsider your opinion on SINOPEC Engineering (Group), explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.