Why Investors Shouldn't Be Surprised By Triple Flag Precious Metals Corp.'s (TSE:TFPM) P/E

With a price-to-earnings (or "P/E") ratio of 64.5x Triple Flag Precious Metals Corp. (TSE:TFPM) may be sending very bearish signals at the moment, given that almost half of all companies in Canada have P/E ratios under 13x and even P/E's lower than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times haven't been advantageous for Triple Flag Precious Metals as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Triple Flag Precious Metals

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

Triple Flag Precious Metals' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 34%. Still, the latest three year period has seen an excellent 590% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 92% during the coming year according to the five analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 13%, which is noticeably less attractive.

In light of this, it's understandable that Triple Flag Precious Metals' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Triple Flag Precious Metals' P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Triple Flag Precious Metals' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Triple Flag Precious Metals that you should be aware of.

If you're unsure about the strength of Triple Flag Precious Metals' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.