OFX Group Limited's (ASX:OFX) Shares Leap 35% Yet They're Still Not Telling The Full Story

The OFX Group Limited (ASX:OFX) share price has done very well over the last month, posting an excellent gain of 35%. Notwithstanding the latest gain, the annual share price return of 7.8% isn't as impressive.

In spite of the firm bounce in price, given about half the companies in Australia have price-to-earnings ratios (or "P/E's") above 20x, you may still consider OFX Group as an attractive investment with its 15.2x 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.

Recent times have been pleasing for OFX Group as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for OFX Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on OFX Group.

Is There Any Growth For OFX Group?

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

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Although pleasingly EPS has lifted 165% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 16% each year during the coming three years according to the four analysts following the company. That's shaping up to be similar to the 17% per annum growth forecast for the broader market.

In light of this, it's peculiar that OFX Group's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From OFX Group's P/E?

The latest share price surge wasn't enough to lift OFX Group's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of OFX Group's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for OFX Group with six simple checks on some of these key factors.

You might be able to find a better investment than OFX Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.