Pinning Down Eagle Materials Inc.'s (NYSE:EXP) P/E Is Difficult Right Now

It's not a stretch to say that Eagle Materials Inc.'s (NYSE:EXP) price-to-earnings (or "P/E") ratio of 17.4x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 19x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent earnings growth for Eagle Materials has been in line with the market. The P/E is probably moderate because investors think this modest earnings performance will continue. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

View our latest analysis for Eagle Materials

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

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Eagle Materials' is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a worthy increase of 3.5%. Pleasingly, EPS has also lifted 74% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 12% over the next year. Meanwhile, the rest of the market is forecast to expand by 15%, which is noticeably more attractive.

With this information, we find it interesting that Eagle Materials is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Eagle Materials' P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Eagle Materials' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Eagle Materials 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.