Is TFS Financial (TFSL) Stock Price Justified After Strong One Year Rally
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If you are wondering whether TFS Financial’s recent share price puts it at a bargain or a stretch, you are in the right place. This article is all about what that price could mean for value focused investors.
TFS Financial shares last closed at US$14.93, with returns of negative 0.3% over the past week, 5.5% over the past month, 10.0% year to date and 19.7% over the past year, while the 3 year and 5 year returns sit at 33.9% and 9.0% respectively.
Recent coverage of TFS Financial has centered on the stock’s longer term performance and how investors are weighing that track record against the current valuation. This helps frame today’s price moves in context and sets up a useful comparison between what the business is delivering and what the market appears willing to pay for it.
Right now TFS Financial has a value score of 0 out of 6, which means it does not screen as undervalued on any of the six checks used. Next we will look at different valuation approaches to see what they imply and then finish with a more holistic way to think about value that goes beyond the headline metrics.
TFS Financial scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
The Excess Returns model looks at how much value a company creates over and above the return that equity investors require. It starts with what the business earns on its equity, compares that to its cost of equity, then capitalizes any surplus or shortfall into an intrinsic value per share.
For TFS Financial, the inputs here are:
Book Value: US$6.82 per share
Stable EPS: US$0.30 per share (source, median return on equity from the past 5 years)
Cost of Equity: US$0.56 per share
Excess Return: US$0.26 loss per share
Average Return on Equity: 4.27%
Stable Book Value: US$6.91 per share (source, weighted future book value estimates from 2 analysts)
Because the estimated excess return is negative, the model implies that TFS Financial is not covering its estimated cost of equity. On this basis, the Excess Returns valuation points to an intrinsic value that sits very far below the current price of US$14.93, suggesting the shares are trading at a very large premium to this model’s estimate.
For a profitable business, the P/E ratio is a straightforward way to gauge how much you are paying for each dollar of earnings. It links directly to what the company is currently earning, which makes it intuitive for comparing with other banks or with your own expectations.
What counts as a “normal” P/E depends on what investors expect from a company. Higher expected growth or lower perceived risk can justify a higher P/E, while lower growth or higher risk usually lines up with a lower P/E. So context really matters.
TFS Financial is trading on a P/E of 46.60x. That sits well above the Banks industry average of 11.89x and also above the peer average of 14.93x. Simply Wall St’s Fair Ratio for TFS Financial is 11.78x, which is its view of what a justified P/E would look like after considering factors such as earnings growth, profit margins, industry, market cap and risk profile. This Fair Ratio can be more useful than a simple peer or industry comparison because it is tailored to the company’s own characteristics rather than broad group averages. Set against the current 46.60x, the 11.78x Fair Ratio suggests the shares are pricing in much richer earnings than this framework supports.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about TFS Financial linked directly to your own numbers, like what you think its fair value, future revenue, earnings and margins should be.
On Simply Wall St, Narratives live in the Community page and let you connect three pieces in one place: the business story you believe, the forecast that story implies, and the fair value that results from those assumptions.
Once you set up a Narrative, the platform shows you how your Fair Value compares with the current share price. This can help you decide whether TFS Financial looks closer to a buy, a hold or a sell for your approach, without anyone telling you what to do.
Your Narrative also updates when fresh information arrives, like new earnings or news, so you are not stuck with a stale view that ignores what just happened.
For TFS Financial, one investor might see a relatively cautious Fair Value and modest outlook, while another builds a more optimistic Narrative with higher earnings and margins. The Community page makes those different viewpoints easy to compare side by side.
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.
