When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Beazer Homes USA, Inc. (NYSE:BZH) as a highly attractive investment with its 5.9x 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.

Recent times haven't been advantageous for Beazer Homes USA as its earnings have been falling quicker 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.

How Is Beazer Homes USA's Growth Trending?

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

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 20%. Still, the latest three year period has seen an excellent 105% overall rise in EPS, in spite of its unsatisfying short-term performance. 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 3.6% during the coming year according to the four analysts following the company. With the market predicted to deliver 12% growth , that's a disappointing outcome.

In light of this, it's understandable that Beazer Homes USA's P/E would sit below the majority of other companies. 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 Beazer Homes USA's P/E

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 Beazer Homes USA maintains its low P/E on the weakness of its forecast for sliding earnings, 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.

Having said that, be aware Beazer Homes USA is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Beazer Homes USA, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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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