When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Legacy Housing Corporation (NASDAQ:LEGH) as an attractive investment with its 9.5x P/E ratio.  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 haven't been advantageous for Legacy Housing as its earnings have been falling quicker than most other companies.   The P/E is probably low because investors think this poor earnings performance isn't going to improve at all.  If you still like the company, you'd want its earnings trajectory to turn around before making any decisions.  If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.    

NasdaqGS:LEGH Price to Earnings Ratio vs Industry March 19th 2024

Keen to find out how analysts think Legacy Housing's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Legacy Housing's Growth Trending?  

In order to justify its P/E ratio, Legacy Housing 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 20%.   Still, the latest three year period has seen an excellent 42% overall rise in EPS, in spite of its unsatisfying short-term performance.  Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.  

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 7.9% over the next year.  Meanwhile, the rest of the market is forecast to expand by 11%, which is noticeably more attractive.

In light of this, it's understandable that Legacy Housing's P/E sits below the majority of other companies.  It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.  

The Bottom Line On Legacy Housing's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Legacy Housing 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.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for Legacy Housing that you need to be mindful of.  

You might be able to find a better investment than Legacy Housing. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.