Flexsteel Industries, Inc.'s (NASDAQ:FLXS) 35% Dip In Price Shows Sentiment Is Matching Earnings

Flexsteel Industries, Inc. (NASDAQ:FLXS) shareholders that were waiting for something to happen have been dealt a blow with a 35% share price drop in the last month. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 17%.

Even after such a large drop in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may still consider Flexsteel Industries as an attractive investment with its 10.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, Flexsteel Industries has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you 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.

See our latest analysis for Flexsteel Industries

Want the full picture on analyst estimates for the company? Then our free report on Flexsteel Industries will help you uncover what's on the horizon.

Is There Any Growth For Flexsteel Industries?

There's an inherent assumption that a company should underperform the market for P/E ratios like Flexsteel Industries' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 29% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 244% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 7.4% as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 14%, which is noticeably more attractive.

In light of this, it's understandable that Flexsteel Industries' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Flexsteel Industries' P/E?

The softening of Flexsteel Industries' shares means its P/E is now sitting at a pretty low level. 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 Flexsteel Industries' 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.

Before you settle on your opinion, we've discovered 3 warning signs for Flexsteel Industries that you should be aware 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.