There Is A Reason Beazer Homes USA, Inc.'s (NYSE:BZH) Price Is Undemanding

With a price-to-earnings (or "P/E") ratio of 9.4x Beazer Homes USA, Inc. (NYSE:BZH) may be sending bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 34x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Beazer Homes USA 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.

View 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.

Is There Any Growth For Beazer Homes USA?

There's an inherent assumption that a company should 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 52%. The last three years don't look nice either as the company has shrunk EPS by 61% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 22% as estimated by the four analysts watching the company. Meanwhile, the broader market is forecast to expand by 15%, which paints a poor picture.

With this information, we are not surprised that Beazer Homes USA is trading at a P/E lower than the market. 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.

What We Can Learn From Beazer Homes USA's P/E?

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 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

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

If you're unsure about the strength of Beazer Homes USA's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.