Is TFS Financial (TFSL) Overvalued After Its Recent Pullback and Year-to-Date Share Price Gains?

TFS Financial (TFSL) has slipped about 3 % over the past week, but shares are still up roughly 13 % this year, raising the question of whether the recent dip offers a patient entry point.

See our latest analysis for TFS Financial.

The pullback comes after a steady climb, with a year to date share price return of about 13 % and a three year total shareholder return above 30 %. This suggests momentum is cooling rather than collapsing as investors reassess the bank's growth and risk profile at around $13.98 per share.

If TFSL's move has you rethinking where bank style stability fits in your portfolio, this could be a good moment to broaden your search. You may wish to explore fast growing stocks with high insider ownership.

With steady single digit growth, a share price near analyst targets, and only a modest recent pullback, investors now face the key question: is TFSL quietly undervalued, or is the market already discounting its future earnings power?

Price to Earnings of 43.5x: Is it justified?

TFS Financial currently trades at a steep premium, with a price to earnings ratio of 43.5 times against a last close of $13.98. This implies the market is paying a high price for each dollar of earnings.

The price to earnings multiple compares what investors pay today to the company’s current earnings. It is a key yardstick for banks where steady profitability is central to valuation. For TFSL, this metric matters because its earnings are growing, but not at a breakneck pace, which raises questions about how much future growth is already baked into the share price.

TFSL’s earnings are forecast to grow about 7.1% per year, slower than the broader US market and not significantly high by growth standards. Yet the stock commands a valuation more commonly associated with faster expanding names. Our fair ratio work suggests a materially lower price to earnings level of 11.6 times could be a more sustainable anchor, a sharp contrast to where the market is pricing TFSL today.

Relative to the US Banks industry average price to earnings of 11.5 times, TFSL’s 43.5 times multiple looks markedly expensive. This signals that investors are assigning it a much richer valuation than typical peers despite only moderate growth.

Explore the SWS fair ratio for TFS Financial

Result: Price-to-Earnings of 43.5x (OVERVALUED)

However, risks remain, including a potential slowdown in loan growth and any shift in credit quality that could pressure earnings and challenge today’s premium valuation.

Find out about the key risks to this TFS Financial narrative.

Another View Using Our DCF Model

While the market is paying a rich 43.5 times earnings for TFSL, our DCF model paints a very different picture. On that basis, fair value sits closer to $1.39, suggesting the stock is heavily overvalued and leaving investors to ask what might happen if sentiment normalizes.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out TFS Financial for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 928 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own TFS Financial Narrative

If this perspective does not quite fit your view, or you would rather dig into the numbers yourself, you can build a full narrative in just a few minutes: Do it your way.

A great starting point for your TFS Financial research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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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.

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