Despite an already strong run, BlueLinx Holdings Inc. (NYSE:BXC) shares have been powering on, with a gain of 31% in the last thirty days. The last 30 days bring the annual gain to a very sharp 63%.

Although its price has surged higher, BlueLinx Holdings may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.1x, since almost half of all companies in the United States have P/E ratios greater than 17x and even P/E's higher than 33x 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.

BlueLinx Holdings 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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for BlueLinx Holdings

Is There Any Growth For BlueLinx Holdings?

In order to justify its P/E ratio, BlueLinx Holdings would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 69% decrease to the company's bottom line. Even so, admirably EPS has lifted 108% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 20% during the coming year according to the four analysts following the company. Meanwhile, the broader market is forecast to expand by 10%, which paints a poor picture.

With this information, we are not surprised that BlueLinx Holdings is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On BlueLinx Holdings' P/E

The latest share price surge wasn't enough to lift BlueLinx Holdings' P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that BlueLinx 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for BlueLinx Holdings (1 can't be ignored!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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