Royal Gold (NASDAQ:RGLD) is going great guns, surging almost 35% year to date as of this writing and handily outperforming peers Wheaton Precious Metals (NYSE: WPM) and Franco Nevada. To be fair, Royal Gold's operational performance in recent quarters has been impressive, and that's reflecting in its share price. That, however, doesn't mean that the stock can't reverse course, especially if it's entering overbought territory. Here are three reasons why Royal Gold stock could fall.

Rising gold prices

Yes, you read that right -- Royal Gold has something to lose if gold prices continue to strengthen.

As a streaming and royalty company, Royal Gold finances miners upfront and in return, secures the right to purchase streams of precious metals from them, usually for the life of mine, at low prices. For example, Royal Gold paid $610 million to Barrick Gold (NYSE:GOLD) in September 2015 to buy a predetermined percentage of the gold and silver produced from the Pueblo Viejo mine at 30% of the spot price up to a certain threshold, and 60% of the spot thereafter.

A board with Risk ahead written on it

Royal Gold stock isn't immune to risks. Image source: Getty Images.

That was back in September 2015. Royal Gold hasn't struck any big deal since. The reason is simple: Miners turn to streaming companies like Royal Gold for funding during a downturn (read: declining gold prices) when they face a cash crunch. Right now, not only are gold prices rising, but Barrick and other miners have also been aggressively cutting costs to boost margin and cash flows.

Long story short, Royal Gold will find fewer opportunities to expand its portfolio as long as gold prices remain strong, and it'll have to bank on its existing streams to grow its revenue. Meanwhile, if any of the developing mines that the streamer has interests in hit a hurdle, its growth could take a backseat.

Delays in upcoming revenue sources

In the near term, Royal Gold is betting on three mines to go online over the next three years. Among these, New Gold's Rainy River mine has already been delayed by several months. The mine is finally expected to start production sometime this running quarter, but this incident demonstrates one of the biggest risks that Royal Gold faces -- the lack of control over its gold production levels.

Another key project that Royal Gold has an interest in is Goldcorp's (NYSE:GG) Pyrite Leach Project at Penasquito. Goldcorp expects the pit to produce lower grade ore until 2019, which also means that Royal Gold will have to do with lower production from the mine, as we saw in 2016 when gold deliveries slumped 21%. Because mining is such a risky and unpredictable business, any hiccups in its development could hit the company's growth.

Don't get me wrong: I'm not predicting either of these mines to run into trouble. All I'm saying is that investors in Royal Gold should remain watchful of these projects as they hold the key to the company's growth.

Premium valuation

Thanks to its recent rally, Royal Gold is now trading at roughly 22 times cash from operations, which is significantly higher than the industry average P/CFO multiple of 10 or even rival Wheaton Precious Metals' valuation, for that matter. Royal Gold is also pricey on a price-to-book value basis.

RGLD Price to CFO Per Share (TTM) Chart

RGLD Price to CFO Per Share (TTM) data by YCharts.

While Royal Gold's revenue and cash flows have grown rapidly in recent quarters, the company needs to grow just as rapidly for the stock to maintain momentum. Royal Gold will report its fourth-quarter and full-year (the company follows a July to June fiscal year) earnings sometime during the second week of August. Any miss -- analysts expect the company's revenue and earnings per share to come in almost 16% higher, each -- or a muted production guidance for the next financial year could hit Royal Gold shares. Just be cautious. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.