A Look At United States Lime & Minerals (USLM) Valuation After Strong Earnings And Prudent Capital Allocation

Recent commentary around United States Lime & Minerals (USLM) has focused on its strong earnings, solid revenue and profit growth, and cautious capital allocation, particularly its emphasis on maintaining a strong balance sheet and returning cash to shareholders.

See our latest analysis for United States Lime & Minerals.

At a share price of $112.85, United States Lime & Minerals has seen a 6.7% year to date share price decline and a 12.2% 1 month share price pullback. However, its 1 year total shareholder return of 17.0% and very large 5 year total shareholder return suggest long term momentum has still been favourable as investors weigh strong earnings and balance sheet strength against recent volatility.

If this kind of price volatility has you comparing opportunities, it could be a good moment to scan our list of 26 elite gold producer stocks as another way to research hard asset producers.

So with a recent share price pullback but a history of strong returns, is United States Lime & Minerals quietly trading at a discount, or is the current price already reflecting its earnings strength and balance sheet quality?

Price-to-Earnings of 24x: Is it justified?

On a P/E of 24x, United States Lime & Minerals trades at a higher earnings multiple than the Global Basic Materials industry average of 15.5x, even after the recent pullback to $112.85.

The P/E ratio compares the current share price to earnings per share and is a quick way to see how much investors are paying for each dollar of earnings. For a lime and limestone producer with established operations and a long operating history, a higher multiple often reflects how the market views its earnings quality and consistency.

USLM is described as having high quality earnings, a current Return on Equity of 21.3% and profit growth of 23.4% over the past year, with 32.5% per year earnings growth over the past 5 years. Those figures help explain why the market is assigning a higher P/E than the broader Global Basic Materials industry, even though the stock is considered expensive relative to that industry average. At the same time, the current 24x P/E is below the 63.1x peer average, so within its more focused peer group the valuation is framed as good value rather than stretched.

Put simply, the market is paying more for USLM earnings than for the average Basic Materials stock, but less than for its closest peers. This suggests investors are balancing strong profitability with more moderate expectations than for the highest rated names.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Earnings of 24x (ABOUT RIGHT)

However, you still need to watch for any slowdown in revenue growth or weaker demand from key construction and industrial customers, as this could pressure earnings and challenge the current valuation.

Find out about the key risks to this United States Lime & Minerals narrative.

Another view using our DCF model

While the 24x P/E suggests USLM is roughly in line with its earnings strength, our DCF model paints a different picture. With the share price at $112.85 versus a future cash flow value estimate of $100.63, the stock screens as overvalued when using this method. Which lens do you find more convincing?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out United States Lime & Minerals for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 53 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this mix of earnings strength and valuation debate leaves you on the fence, take a closer look at the underlying metrics yourself and move quickly to shape your own view. You can start with 1 key reward.

Looking for more investment ideas?

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• Target quality at a fair price by scanning our list of 53 high quality undervalued stocks that combine fundamentals with pricing that may warrant a closer look.
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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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