James Hardie Industries plc (ASX:JHX) Shares Slammed 26% But Getting In Cheap Might Be Difficult Regardless

Unfortunately for some shareholders, the James Hardie Industries plc (ASX:JHX) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 54% loss during that time.

Although its price has dipped substantially, James Hardie Industries' price-to-earnings (or "P/E") ratio of 29.5x might still make it look like a sell right now compared to the market in Australia, where around half of the companies have P/E ratios below 21x and even P/E's below 12x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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While the market has experienced earnings growth lately, James Hardie Industries' earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for James Hardie Industries

Keen to find out how analysts think James Hardie Industries' future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

In order to justify its P/E ratio, James Hardie Industries would need to produce impressive growth in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 34%. As a result, earnings from three years ago have also fallen 49% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 25% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 18% per year, which is noticeably less attractive.

In light of this, it's understandable that James Hardie Industries' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

There's still some solid strength behind James Hardie Industries' P/E, if not its share price lately. 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 James Hardie Industries' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider and we've discovered 4 warning signs for James Hardie Industries (1 is significant!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.