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Benign Growth For Royalty Pharma plc (NASDAQ:RPRX) Underpins Its Share Price

Simply Wall St · 07/06 13:12

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Royalty Pharma plc (NASDAQ:RPRX) as an attractive investment with its 14x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Royalty Pharma certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Royalty Pharma

pe-multiple-vs-industry
NasdaqGS:RPRX Price to Earnings Ratio vs Industry July 6th 2025
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Royalty Pharma.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Royalty Pharma would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 38% gain to the company's bottom line. The latest three year period has also seen an excellent 83% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 3.6% per annum during the coming three years according to the six analysts following the company. Meanwhile, the rest of the market is forecast to expand by 10% each year, which is noticeably more attractive.

With this information, we can see why Royalty Pharma is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Royalty Pharma's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Royalty Pharma's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

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

Of course, you might also be able to find a better stock than Royalty Pharma. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.