Jefferies Financial Group Inc. (NYSE:JEF) Might Not Be As Mispriced As It Looks After Plunging 28%

Jefferies Financial Group Inc. (NYSE:JEF) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Longer-term, the stock has been solid despite a difficult 30 days, gaining 24% in the last year.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Jefferies Financial Group's P/E ratio of 16.6x, since the median price-to-earnings (or "P/E") ratio in the United States is also close to 17x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Jefferies Financial Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Jefferies Financial Group

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

How Is Jefferies Financial Group's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 173% gain to the company's bottom line. Still, incredibly EPS has fallen 49% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 32% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 11% per year, which is noticeably less attractive.

With this information, we find it interesting that Jefferies Financial Group is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Jefferies Financial Group's P/E?

Following Jefferies Financial Group's share price tumble, its P/E is now hanging on to the median market P/E. 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 Jefferies Financial Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Jefferies Financial Group that you need to be mindful of.

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.