P/E Corridor

pe trailing

TPL, with its 10/30 closing price of $710, stands at a 38 P/E relative to trailing 12mo earnings of $18.63 per share.  After earnings print (tomorrow??), trailing 12mo earnings could migrate to $22.27 per share if the $7 estimates are correct ($7 goes in, $3.36 Q317 drops out).  If P/E stays at the low end of its recent corridor range, we get to $846 (38 x $22.27).

For fun, a 2016 energy selloff-type move to 20x gets TPL to $445 after assumed earnings.  That looks to be close to the floor on valuation.

Also after assumed earnings, a reversion to long term 30x trailing 12mo EPS puts TPL at $668.  Pretty close to where we are now.

If the price doesn’t move after earnings print, $22.27 trailing 12mo earnings at $710 implies a 12mo trailing P/E of 31.9x.  In that case, TPL would be very close to average long term historical valuation though you could argue that the income picture has changed substantially over the observed time period.

What’s the right P/E for the new watery, minerally, and sundry-y TPL?

pe trailing long

Source:  Bloomberg



2 thoughts on “P/E Corridor

  1. Thanks for your data showing that TPL’s average P/E ratio is around 38. Very difficult to say what the “right” P/E ratio is for such a unique stock when you consider the anticipated acceleration of earnings as the Permian oil boom peaks in the coming years, while shares continue to get retired by the trust at a steady clip. Novice investors (and analysts) may get scared off by the 50+ P/E ratio that has been occurring over the last few years, but if you have faith (like I do) that the earnings will likely come in around $30/share for the year, then it’s totally possible that at even a conservative P/E ratio we should expect a great surge in the price. No guarantees, of course, but I’ll bet on the upside!
    Here’s a fairly elementary commentary I found on Yahoo about TPL’s P/E ratio from a few weeks ago:


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  2. Interesting analysis. Putting a trend line on the data from 2017 and 2018 shows its on the decline. Which is probably to be expected as the earnings have been surging over this time period. It also suggests there is p/e compression, perhaps due to different buyers and expectations than in the past. One could argue the p/e is under where it should be, given the trust is clearly doing better than anytime in its history.

    I bought my position in 2011 and paid the equivalent of a p/e in the high 40’s, well above today’s number. Liked the constantly reducing share count, and the land inflation protection angle. As a value investor, had to hold my nose at the p/e, and agree with Jeff’s comments, determined its such an idiosyncratic company where p/e does not matter much.

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