Getting In Cheap On US Foods Holding Corp. (NYSE:USFD) Might Be Difficult

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider US Foods Holding Corp. (NYSE:USFD) as a stock to potentially avoid with its 25.2x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

US Foods Holding certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for US Foods Holding

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

How Is US Foods Holding's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like US Foods Holding's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 105%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 20% per year as estimated by the analysts watching the company. With the market only predicted to deliver 11% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that US Foods Holding's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From US Foods Holding'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 US Foods Holding maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - US Foods Holding has 2 warning signs we think you should be aware of.

You might be able to find a better investment than US Foods Holding. 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.