With a median price-to-earnings (or "P/E") ratio of close to 19x in the United States, you could be forgiven for feeling indifferent about Silgan Holdings Inc.'s (NYSE:SLGN) P/E ratio of 19.3x. 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.

Silgan Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

What Are Growth Metrics Telling Us About The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Silgan Holdings' to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.3% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 8.5% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 17% per year as estimated by the eleven analysts watching the company. That's shaping up to be materially higher than the 11% per annum growth forecast for the broader market.

With this information, we find it interesting that Silgan Holdings is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

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.

We've established that Silgan Holdings currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you take the next step, you should know about the 1 warning sign for Silgan Holdings that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.