Do Its Financials Have Any Role To Play In Driving Triple Flag Precious Metals Corp.'s (TSE:TFPM) Stock Up Recently?

Triple Flag Precious Metals (TSE:TFPM) has had a great run on the share market with its stock up by a significant 41% over the last three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Triple Flag Precious Metals' ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Triple Flag Precious Metals

How Do You Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Triple Flag Precious Metals is:

2.0% = US$37m ÷ US$1.8b (Based on the trailing twelve months to March 2024).

The 'return' is the profit over the last twelve months. So, this means that for every CA$1 of its shareholder's investments, the company generates a profit of CA$0.02.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Triple Flag Precious Metals' Earnings Growth And 2.0% ROE

As you can see, Triple Flag Precious Metals' ROE looks pretty weak. Even when compared to the industry average of 9.6%, the ROE figure is pretty disappointing. Despite this, surprisingly, Triple Flag Precious Metals saw an exceptional 26% net income growth over the past five years. Therefore, there could be other reasons behind this growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing Triple Flag Precious Metals' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 29% over the last few years.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is TFPM fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Triple Flag Precious Metals Making Efficient Use Of Its Profits?

Triple Flag Precious Metals' significant three-year median payout ratio of 58% (where it is retaining only 42% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Additionally, Triple Flag Precious Metals has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

On the whole, we do feel that Triple Flag Precious Metals has some positive attributes. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.