When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider US Foods Holding Corp. (NYSE:USFD) as a stock to avoid entirely with its 28.9x P/E ratio. However, the P/E might be quite 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. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is US Foods Holding's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as US Foods Holding's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 27% per year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 10% per year growth forecast for the broader market.

With this information, we can see why US Foods Holding is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On US Foods Holding's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of US Foods Holding's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for US Foods Holding that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.