U.S. Silica Holdings, Inc.'s (NYSE:SLCA) Earnings Are Not Doing Enough For Some Investors

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider U.S. Silica Holdings, Inc. (NYSE:SLCA) as a highly attractive investment with its 6.2x 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 so limited.

Recent times have been pleasing for U.S. Silica Holdings as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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.

Check out our latest analysis for U.S. Silica Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on U.S. Silica Holdings.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, U.S. Silica Holdings would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 84%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to slump, contracting by 27% during the coming year according to the two analysts following the company. That's not great when the rest of the market is expected to grow by 12%.

In light of this, it's understandable that U.S. Silica Holdings' 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 Key Takeaway

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.

As we suspected, our examination of U.S. Silica Holdings' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for U.S. Silica Holdings you should be aware of.

If these risks are making you reconsider your opinion on U.S. Silica Holdings, 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.