Currently trading on a PE of 16.87. Historically the lowest it's...

Currently trading on a PE of 16.87. Historically the lowest it's been since 2013.
Would be interested in your thoughts on where you see fair value. Consensus has it at a discount of 17%. Share price has dropped a further 12% since your post.

@Arpeebee,

For starters, I would pay zero attention to consensus figures, because stockbroking analysts are, based on my long-made observations, inordinately poor at making investment recommendations.

As for it having fallen by 12% since my last post, the broader market has done so too, meaning that DLX is not any cheaper, relative to the basket of other stocks.

And in terms of the far more important thing, namely absolute value, well, I don't think that a P/E of 16.9x even represents fair value (let alone under-valuation).


"Historically the lowest it's been since 2013."

The dangerous problem with that sort of reference period is that it was 2013 to 2018 represented a most unusual period for global capital markets which make it totally unreliable for a valuation reference purposes.

This issue was discussed just yesterday briefly in a post about a similarly high-quality business as DLX, namely ARB:

"Problem with ARB is that - despite its impressive fall in price - is that it is still not what I consider to be under-valued.

After years of easy money translating into record-low earnings yields (i.e., high P/E's) the world has changed in the past 3 months as markets suddenly - and belatedly - awoke to tightening global liquidity.

Meaning that whatever multiples one might have considered to "fair" or "reasonable" or "appropriate" 6 or 12 months ago, those multiples now need to be structurally adjusted downwards - possibly by a reduction factor of 25% or 30%.

So, if a high-quality, long-duration growth stock such as ARB happily traded at 25x PE multiples during the pre-2018 "easy money" days, that multiple should now be closer to 17/18x.

And for a cyclical consumer or cyclical industrial business such as NCK, whereas a 15x/16x multiple was the norm 12 months ago, today 12x/13x represents fair value, I think.

Having experienced a number of these market ructions, I have a very strong sense that we've just passed one of those seminal moments that capital markets experience, maybe, once every 7 or 8 years.

Because the investment world spent such an extended period of time (10 years, effectively, since the GFC) in a luxurious state of acutely easy money, I sense that a great many market participants - including fund managers, stockbroking analysts, the financial media, and (naturally) individual investors - are going to take some time to re-calibrate their valuation thinking to fully account for the "new normal".

For many investors today, the majority of their investing careers (if not all of it) would have occurred against the backdrop of risk-free returns of less than 1%.

Hard habits are going to die hard, I fear."


I think the world has changed, and it is going back to pre-2013 days when, for a company like DLX, a P/E of 15x - certainly below 16x - is probably fair value.

That equates to a share price below $6.00, I think.