Insufficient Growth At American Woodmark Corporation (NASDAQ:AMWD) Hampers Share Price

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider American Woodmark Corporation (NASDAQ:AMWD) as an attractive investment with its 11.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

American Woodmark hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. 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 American Woodmark

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

How Is American Woodmark's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 1.7%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 335% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 1.8% over the next year. That's shaping up to be materially lower than the 15% growth forecast for the broader market.

With this information, we can see why American Woodmark is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From American Woodmark's P/E?

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.

We've established that American Woodmark maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for American Woodmark with six simple checks.

You might be able to find a better investment than American Woodmark. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.