OppFi Inc. (NYSE:OPFI) shares have continued their recent momentum with a 36% gain in the last month alone. The last month tops off a massive increase of 106% in the last year.
After such a large jump in price, given around half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider OppFi as a stock to potentially avoid with its 27x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
OppFi hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on OppFi.
Does Growth Match The High P/E?
In order to justify its P/E ratio, OppFi would need to produce impressive growth in excess of the market.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 24%. This means it has also seen a slide in earnings over the longer-term as EPS is down 85% in total over the last three years. 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 243% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 15% growth forecast for the broader market.
In light of this, it's understandable that OppFi's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
The large bounce in OppFi's shares has lifted the company's P/E to a fairly high level. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of OppFi's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
Before you take the next step, you should know about the 3 warning signs for OppFi that we have uncovered.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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