Stockbroker Bell Financial Group Ltd (ASX: BFG) released an update earlier today showing that profit before tax (PBT) was up 31% to $21.6 million for the first 10 months of 2016. The result is driven by revenue being 10% higher at $151 million, which indicates operating leverage at play.

The company’s core Retail Equities division recorded 14% revenue growth to $96.6 million and generated PBT of $11.5 million. Meanwhile the higher margin Institutional Broking and Corporate Finance division registered flat revenues and PBT of $6.6 million. Results were mixed in the other three smaller divisions with revenue down 5% in Futures and FX up 25%.

The market responded well to the news with shares trading 3.6% higher earlier today, albeit on low volumes.

With a market capitalisation of $187.1 million, Bell looks to be trading on a forward price-to-earnings ratio (PER) of around 10 if you annualise its 10-month performance. It also pays an attractive 6.8% fully franked dividend.

Sounds cheap in the context of 31% profit growth, right?

Whilst this year’s result sounds impressive compared to last year, investors should be aware that Bell’s fortunes largely depend on the financial markets and profits can therefore fluctuate wildly. For example, in 2012 revenue fell 23.6% to $66.5 million and PBT swung from $9.3 million to a loss of $2.7 million.

Furthermore, Bell’s share price is just 30% of what it was when it listed in 2007 prior to the GFC. Due to the cyclicality of the business there have been extreme peaks and troughs along the way, but the overall trend is clearly in the downward direction. Like all cyclical stocks, the best time to buy them is usually when sentiment is at its worst, but personally I tend to try to avoid them altogether.

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Motley Fool contributor Matt Brazier has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.