A Piece Of The Puzzle Missing From Deluxe Corporation's (NYSE:DLX) 30% Share Price Climb

Despite an already strong run, Deluxe Corporation (NYSE:DLX) shares have been powering on, with a gain of 30% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 25% is also fairly reasonable.

Even after such a large jump in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may still consider Deluxe as an attractive investment with its 14.9x P/E ratio. 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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Deluxe 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 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.

View 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.

Does Growth Match The Low P/E?

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.

If we review the last year of earnings growth, the company posted a terrific increase of 57%. The latest three year period has also seen a 25% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 35% during the coming year according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 16%, which is noticeably less attractive.

With this information, we find it odd that Deluxe is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

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

Despite Deluxe's shares building up a head of steam, its P/E still lags most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Deluxe currently trades on a much 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 significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Having said that, be aware Deluxe is showing 1 warning sign in our investment analysis, you should know about.

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.