Investors Still Aren't Entirely Convinced By Jefferies Financial Group Inc.'s (NYSE:JEF) Earnings Despite 26% Price Jump

Jefferies Financial Group Inc. (NYSE:JEF) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

Although its price has surged higher, there still wouldn't be many who think Jefferies Financial Group's price-to-earnings (or "P/E") ratio of 17.5x is worth a mention when the median P/E in the United States is similar at about 18x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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With earnings growth that's superior to most other companies of late, Jefferies Financial Group 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.

See our latest analysis for Jefferies Financial Group

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

Is There Some Growth For Jefferies Financial Group?

Jefferies Financial Group's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 136% last year. Still, incredibly EPS has fallen 43% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 20% each year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 10% each year growth forecast for the broader market.

In light of this, it's curious that Jefferies Financial Group's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Jefferies Financial Group's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

We've established that Jefferies Financial Group currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. 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. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Jefferies Financial Group you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.