Deluxe Corporation's (NYSE:DLX) Shares Leap 26% Yet They're Still Not Telling The Full Story

Deluxe Corporation (NYSE:DLX) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Looking further back, the 24% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, there still wouldn't be many who think Deluxe's price-to-earnings (or "P/E") ratio of 19.1x is worth a mention when the median P/E in the United States is similar at about 20x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, Deluxe has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.

Check out our latest analysis for Deluxe

Want the full picture on analyst estimates for the company? Then our free report on Deluxe will help you uncover what's on the horizon.

Is There Some Growth For Deluxe?

In order to justify its P/E ratio, Deluxe would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 81% gain to the company's bottom line. Still, incredibly EPS has fallen 28% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 30% over the next year. With the market only predicted to deliver 15%, the company is positioned for a stronger earnings result.

In light of this, it's curious that Deluxe's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Deluxe's P/E?

Deluxe appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

Our examination of Deluxe's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Plus, you should also learn about these 3 warning signs we've spotted with Deluxe (including 1 which can't be ignored).

If these risks are making you reconsider your opinion on Deluxe, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.