Heritage Insurance Holdings, Inc.'s (NYSE:HRTG) Prospects Need A Boost To Lift Shares

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Heritage Insurance Holdings, Inc. (NYSE:HRTG) as a highly attractive investment with its 4.5x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Heritage Insurance Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 Heritage Insurance Holdings

Keen to find out how analysts think Heritage Insurance Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 135% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 26% during the coming year according to the three analysts following the company. With the market predicted to deliver 14% growth , that's a disappointing outcome.

In light of this, it's understandable that Heritage Insurance Holdings' 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 Bottom Line On Heritage Insurance Holdings' P/E

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 Heritage Insurance Holdings maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Heritage Insurance Holdings with six simple checks on some of these key factors.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.