Earnings Not Telling The Story For Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) After Shares Rise 34%

Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) shareholders have had their patience rewarded with a 34% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 26%.

In spite of the firm bounce in price, it's still not a stretch to say that Solaris Oilfield Infrastructure's price-to-earnings (or "P/E") ratio of 17.2x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 17x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings that are retreating more than the market's of late, Solaris Oilfield Infrastructure has been very sluggish. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

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Does Growth Match The P/E?

In order to justify its P/E ratio, Solaris Oilfield Infrastructure would need to produce growth that's similar to 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 10%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the two analysts covering the company suggest earnings growth is heading into negative territory, declining 22% over the next year. Meanwhile, the broader market is forecast to expand by 12%, which paints a poor picture.

In light of this, it's somewhat alarming that Solaris Oilfield Infrastructure's P/E sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

What We Can Learn From Solaris Oilfield Infrastructure's P/E?

Solaris Oilfield Infrastructure's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

Our examination of Solaris Oilfield Infrastructure's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about these 2 warning signs we've spotted with Solaris Oilfield Infrastructure.

If you're unsure about the strength of Solaris Oilfield Infrastructure's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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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