Little Excitement Around Beazer Homes USA, Inc.'s (NYSE:BZH) Earnings

With a price-to-earnings (or "P/E") ratio of 5.1x Beazer Homes USA, Inc. (NYSE:BZH) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 32x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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Beazer Homes USA could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. 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 Beazer Homes USA

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

Does Growth Match The Low P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 22%. As a result, earnings from three years ago have also fallen 17% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings growth is heading into negative territory, declining 0.5% over the next year. That's not great when the rest of the market is expected to grow by 14%.

In light of this, it's understandable that Beazer Homes USA's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Beazer Homes USA maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Beazer Homes USA has 2 warning signs (and 1 which is significant) we think you should know about.

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.