Despite an already strong run, Paragon Care Limited (ASX:PGC) shares have been powering on, with a gain of 30% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.

Although its price has surged higher, given about half the companies in Australia have price-to-earnings ratios (or "P/E's") above 19x, you may still consider Paragon Care as an attractive investment with its 12.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Paragon Care has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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.

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How Is Paragon Care's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 46% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 13% per annum over the next three years. With the market predicted to deliver 18% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why Paragon Care is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Paragon Care's P/E?

The latest share price surge wasn't enough to lift Paragon Care's P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.