Valuation Checkup

Trailing 12mo EPS stands at $21.79 as of 9/30/18.

12mo trailing eps

Since the quarter printed, we’ve seen the Trailing 12mo Earnings multiple contract from 39.6x to 26.3x.

26.3x is below the long term mean of 28.8x but comfortably inside one standard deviation from the mean (17.4x).

px and pe

It appears that TPL’s multiple had a bit of a regime shift in late 2005.  After that point, P/Es were generally higher with an average of 36.1x.  Though the P/E also appears more volatile, the standard deviation of the smaller sample is 10.9x vs 11.4x for the entire history displayed.

Fair value at long term P/E mean = $21.79 x 28.8x = $628

Fair value at 9/2005 through current P/E mean = $21.79 x 36.1x = $726

Source: Bloomberg


4 thoughts on “Valuation Checkup

  1. Its clearly worth more than the current quote. Feels like to me the “blowoff” stage of the speculative part of this market is taking a toll on TPL, and the momentum crowd has pulled the trigger and left.

    Interesting analysis on the two flavors of p/e. Some of it may be the current price is more an analog for a royalty o&g company due to the large earning that are now flowing. And that type of investor is going to care about growth in EPS, which on a percentage basis is slowing.

    The old school TPL was more of a land and “its worth something more than the earnings reflect” kind of stock, so p/e didn’t matter. My thinking as a holder since prices were below $100 was the p/e didn’t reflect the many potential places for hidden value.

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    • Ted, I share your thoughts about a different type of investor coming into the fold where so much of the focus is now on EPS and volatility associated with short term market fluctuations in O&G. For me, the value proposition was always (and will continue to be) a dream of being “last man standing” when the trust eventually liquidates itself through buy backs. My dad, a major shareholder, always told me, “it won’t be in my lifetime or maybe even yours, but at some point this thing may be worth something.” I’m glad he has at least started to experience some payoff late in his retirement years, as will I.

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  2. Fully agree Jeff with the change in the ownership mix. And besides HK, there has been a lot of hedge and small fund ownership I have noticed in higher percentages over the last few quarters. Which is perhaps explanatory for the price runup of the last few months, as large blue tickets were written to take positions.

    And it may also explain both the choppyness and price drop, as the more momentum strategies are unwound at large sell volume.

    Like you Jeff, want to be the last owner standing with my stake. Agree it won’t be me, but a generation or two from now it will really be worth something. With an average cost of $58, I care not what a few quarters, or even years of roller coaster behavior does to the price. Its a long term investment, as in generational.

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