Why Investors Shouldn't Be Surprised By Nucor Corporation's (NYSE:NUE) Low P/E

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Nucor Corporation (NYSE:NUE) as an attractive investment with its 10.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Nucor has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Nucor

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Nucor would need to produce sluggish growth that's trailing 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 36%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 43% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 0.3% per year as estimated by the eleven analysts watching the company. That's shaping up to be materially lower than the 10% per year growth forecast for the broader market.

With this information, we can see why Nucor is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Nucor's 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.

We've established that Nucor maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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.

Before you settle on your opinion, we've discovered 1 warning sign for Nucor that you should be aware of.

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.