Take Care Before Jumping Onto Deluxe Corporation (NYSE:DLX) Even Though It's 28% Cheaper

The Deluxe Corporation (NYSE:DLX) share price has fared very poorly over the last month, falling by a substantial 28%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 14% in that time.

Since its price has dipped substantially, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Deluxe as an attractive investment with its 13.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Deluxe has been doing relatively well. 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

Keen to find out how analysts think Deluxe's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Deluxe?

Deluxe's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 100%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 20% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 36% during the coming year according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 14%, which is noticeably less attractive.

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.

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

Deluxe's P/E has taken a tumble along with its share price. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

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.

Having said that, be aware Deluxe is showing 3 warning signs in our investment analysis, and 1 of those is concerning.

Of course, you might also be able to find a better stock than Deluxe. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.