Optimistic Investors Push Tribune Resources Limited (ASX:TBR) Shares Up 27% But Growth Is Lacking

Tribune Resources Limited (ASX:TBR) shareholders have had their patience rewarded with a 27% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 2.8% isn't as impressive.

Since its price has surged higher, Tribune Resources may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 27.9x, since almost half of all companies in Australia have P/E ratios under 19x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Earnings have risen firmly for Tribune Resources recently, which is pleasing to see. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Tribune Resources

Although there are no analyst estimates available for Tribune Resources, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Growth For Tribune Resources?

The only time you'd be truly comfortable seeing a P/E as high as Tribune Resources' is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 27% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 84% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 28% shows it's an unpleasant look.

In light of this, it's alarming that Tribune Resources' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Final Word

Tribune Resources' P/E is getting right up there since its shares have risen strongly. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Tribune Resources currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 2 warning signs for Tribune Resources (1 makes us a bit uncomfortable!) that you should be aware of.

If these risks are making you reconsider your opinion on Tribune Resources, 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.