Not Many Are Piling Into Lifestyle Communities Limited (ASX:LIC) Stock Yet As It Plummets 34%

The Lifestyle Communities Limited (ASX:LIC) share price has fared very poorly over the last month, falling by a substantial 34%. For any long-term shareholders, the last month ends a year to forget by locking in a 63% share price decline.

After such a large drop in price, Lifestyle Communities may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.3x, since almost half of all companies in Australia have P/E ratios greater than 19x and even P/E's higher than 35x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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.

How Is Lifestyle Communities' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Lifestyle Communities' is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 41%. This means it has also seen a slide in earnings over the longer-term as EPS is down 57% in total over the last three years. 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 17% per year during the coming three years according to the seven analysts following the company. That's shaping up to be similar to the 15% each year growth forecast for the broader market.

In light of this, it's peculiar that Lifestyle Communities' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Lifestyle Communities' P/E has taken a tumble along with its share price. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Lifestyle Communities' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Lifestyle Communities (1 makes us a bit uncomfortable!) that you need to be mindful of.

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.