Investors Appear Satisfied With Flexsteel Industries, Inc.'s (NASDAQ:FLXS) Prospects As Shares Rocket 30%

Flexsteel Industries, Inc. (NASDAQ:FLXS) shares have continued their recent momentum with a 30% gain in the last month alone. The annual gain comes to 185% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Flexsteel Industries' price-to-earnings (or "P/E") ratio of 21.3x might make it look like a sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 17x and even P/E's below 10x are quite common. 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.

With earnings that are retreating more than the market's of late, Flexsteel Industries has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Flexsteel Industries

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

Is There Enough Growth For Flexsteel Industries?

Flexsteel Industries' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 8.4%. As a result, earnings from three years ago have also fallen 21% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 25% over the next year. With the market only predicted to deliver 15%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Flexsteel Industries' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Flexsteel Industries' P/E

Flexsteel Industries' P/E is getting right up there since its shares have risen strongly. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Flexsteel 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.

Plus, you should also learn about these 2 warning signs we've spotted with Flexsteel Industries.

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).

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.