Green Brick Partners, Inc. (NYSE:GRBK) shareholders have had their patience rewarded with a 30% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 36% in the last year.

In spite of the firm bounce in price, Green Brick Partners may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.9x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 33x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been pleasing for Green Brick Partners as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Green Brick Partners' to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 6.1%. Pleasingly, EPS has also lifted 174% 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.

Turning to the outlook, the next year should generate growth of 13% as estimated by the four analysts watching the company. With the market predicted to deliver 13% growth , the company is positioned for a comparable earnings result.

With this information, we find it odd that Green Brick Partners is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Green Brick Partners' P/E

Despite Green Brick Partners' shares building up a head of steam, its P/E still lags most other companies. 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 Green Brick Partners currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Green Brick Partners 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.

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