Trulieve Cannabis Corp (TCNNF)

[FUNMAN]

What Is Trulieve's P/E Ratio After Its Share Price Rocketed?

December 3, 2019

https://finance.yahoo.com/news/trulieve-cannabiss-cnsx-trul-p-102507608.html

It's really great to see that even after a strong run, Trulieve Cannabis (CNSX:TRUL) shares have been powering on, with a gain of 30% in the last thirty days. Looking back a bit further, we're also happy to report the stock is up 56% in the last year.

Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that deep value investors might steer clear when expectations of a company are too high. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

How Does Trulieve Cannabis's P/E Ratio Compare To Its Peers?
We can tell from its P/E ratio of 10.10 that sentiment around Trulieve Cannabis isn't particularly high. The image below shows that Trulieve Cannabis has a lower P/E than the average (19.6) P/E for companies in the pharmaceuticals industry.

This suggests that market participants think Trulieve Cannabis will underperform other companies in its industry. Many investors like to buy stocks when the market is pessimistic about their prospects. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.

How Growth Rates Impact P/E Ratios

Earnings growth rates have a big influence on P/E ratios. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. And in that case, the P/E ratio itself will drop rather quickly. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.

Trulieve Cannabis's earnings made like a rocket, taking off 338% last year.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
The 'Price' in P/E reflects the market capitalization of the company. Thus, the metric does not reflect cash or debt held by the company. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.

So What Does Trulieve Cannabis's Balance Sheet Tell Us?
Trulieve Cannabis's net debt is 3.3% of its market cap. So it doesn't have as many options as it would with net cash, but its debt would not have much of an impact on its P/E ratio.

The Bottom Line On Trulieve Cannabis's P/E Ratio

Trulieve Cannabis has a P/E of 10.1. That's below the average in the CA market, which is 14.8. The EPS growth last year was strong, and debt levels are quite reasonable. The low P/E ratio suggests current market expectations are muted, implying these levels of growth will not continue. What we know for sure is that investors have become more excited about Trulieve Cannabis recently, since they have pushed its P/E ratio from 7.8 to 10.1 over the last month. For those who prefer to invest with the flow of momentum, that might mean it's time to put the stock on a watchlist, or research it. But the contrarian may see it as a missed opportunity.