Take Care Before Diving Into The Deep End On Restaurant Brands International Limited Partnership (TSE:QSP.UN)

There wouldn't be many who think Restaurant Brands International Limited Partnership's (TSE:QSP.UN) price-to-earnings (or "P/E") ratio of 13x is worth a mention when the median P/E in Canada is similar at about 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

The earnings growth achieved at Restaurant Brands International Limited Partnership over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Check out our latest analysis for Restaurant Brands International Limited Partnership

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Restaurant Brands International Limited Partnership's earnings, revenue and cash flow.

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

In order to justify its P/E ratio, Restaurant Brands International Limited Partnership would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 21% gain to the company's bottom line. Pleasingly, EPS has also lifted 154% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Restaurant Brands International Limited Partnership is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Restaurant Brands International Limited Partnership'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.

We've established that Restaurant Brands International Limited Partnership currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Restaurant Brands International Limited Partnership (2 are potentially serious) you should be aware of.

If you're unsure about the strength of Restaurant Brands International Limited Partnership's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com