Stock Analysis

Triple Flag Precious Metals Corp.'s (TSE:TFPM) Business Is Trailing The Industry But Its Shares Aren't

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When you see that almost half of the companies in the Metals and Mining industry in Canada have price-to-sales ratios (or "P/S") below 2.8x, Triple Flag Precious Metals Corp. (TSE:TFPM) looks to be giving off strong sell signals with its 14.9x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Triple Flag Precious Metals

TSX:TFPM Price to Sales Ratio vs Industry April 4th 2024

How Triple Flag Precious Metals Has Been Performing

With revenue growth that's superior to most other companies of late, Triple Flag Precious Metals has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Triple Flag Precious Metals.

Is There Enough Revenue Growth Forecasted For Triple Flag Precious Metals?

In order to justify its P/S ratio, Triple Flag Precious Metals would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 34%. Pleasingly, revenue has also lifted 81% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 6.8% per annum over the next three years. With the industry predicted to deliver 8.9% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Triple Flag Precious Metals' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It comes as a surprise to see Triple Flag Precious Metals trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 3 warning signs for Triple Flag Precious Metals that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Valuation is complex, but we're helping make it simple.

Find out whether Triple Flag Precious Metals is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.


Triple Flag Precious Metals

A precious-metals-focused streaming and royalty company, engages in acquiring and managing precious metals, streams, royalties and other mineral interests in Australia, Canada, Colombia, Cote d’Ivoire, Honduras, Mexico, Mongolia, Peru, South Africa, the United States, and internationally.

Flawless balance sheet with moderate growth potential.