Investors Don't See Light At End Of Beazer Homes USA, Inc.'s (NYSE:BZH) Tunnel

With a price-to-earnings (or "P/E") ratio of 7.4x Beazer Homes USA, Inc. (NYSE:BZH) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 34x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Beazer Homes USA could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

Check out our latest analysis for Beazer Homes USA

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How Is Beazer Homes USA's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Beazer Homes USA's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 40%. The last three years don't look nice either as the company has shrunk EPS by 41% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 0.03% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 10% per annum, which is noticeably more attractive.

In light of this, it's understandable that Beazer Homes USA's P/E sits below the majority of other companies. 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 Beazer Homes USA's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Beazer Homes USA 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Beazer Homes USA (1 is concerning!) that we have uncovered.

If these risks are making you reconsider your opinion on Beazer Homes USA, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.