Lifestyle Communities Limited (ASX:LIC) Looks Inexpensive After Falling 27% But Perhaps Not Attractive Enough

The Lifestyle Communities Limited (ASX:LIC) share price has fared very poorly over the last month, falling by a substantial 27%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 47% share price drop.

Although its price has dipped substantially, Lifestyle Communities may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.2x, since almost half of all companies in Australia have P/E ratios greater than 20x and even P/E's higher than 38x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Lifestyle Communities' earnings have gone into reverse gear, which is not great. 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 Lifestyle Communities

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

Is There Any Growth For Lifestyle Communities?

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

Retrospectively, the last year delivered a frustrating 11% decrease to the company's bottom line. Even so, admirably EPS has lifted 60% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 14% per annum during the coming three years according to the ten analysts following the company. 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 Lifestyle Communities 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 Lifestyle Communities' P/E?

Lifestyle Communities' P/E has taken a tumble along with its share price. 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.

As we suspected, our examination of Lifestyle Communities' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Lifestyle Communities (of which 2 are significant!) you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.

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