Cavco Industries, Inc.'s (NASDAQ:CVCO) P/E Is On The Mark

With a price-to-earnings (or "P/E") ratio of 24.9x Cavco Industries, Inc. (NASDAQ:CVCO) may be sending bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 17x and even P/E's lower than 10x are not unusual. 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.

We check all companies for important risks. See what we found for Cavco Industries in our free report.

Recent times haven't been advantageous for Cavco Industries as its earnings have been rising slower than most other companies. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Cavco Industries

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cavco Industries.

How Is Cavco Industries' Growth Trending?

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

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Regardless, EPS has managed to lift by a handy 14% in aggregate from three years ago, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 20% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 14% growth forecast for the broader market.

In light of this, it's understandable that Cavco 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 Bottom Line On Cavco Industries' 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 Cavco Industries maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Cavco Industries with six simple checks.

You might be able to find a better investment than Cavco Industries. 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.