Market Might Still Lack Some Conviction On Deluxe Corporation (NYSE:DLX) Even After 26% Share Price Boost

Deluxe Corporation (NYSE:DLX) shares have continued their recent momentum with a 26% gain in the last month alone. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.5% in the last twelve months.

Even after such a large jump in price, Deluxe may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.2x, since almost half of all companies in the United States have P/E ratios greater than 20x and even P/E's higher than 35x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Recent times have been advantageous for Deluxe as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Deluxe

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

Is There Any Growth For Deluxe?

The only time you'd be truly comfortable seeing a P/E as low as Deluxe's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 49% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 4.7% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 40% over the next year. With the market only predicted to deliver 15%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Deluxe is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Deluxe's P/E

The latest share price surge wasn't enough to lift Deluxe's P/E close to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Deluxe's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near 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 significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Deluxe (including 1 which is potentially serious).

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.