MBIA Inc (NYSE:MBI), a insurance company based in United States, led the NYSE gainers with a relatively large price hike in the past couple of weeks. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on MBIA’s outlook and valuation to see if the opportunity still exists. See our latest analysis for MBIA
What is MBIA worth?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that MBIA’s ratio of 0.54x is trading slightly below its industry peers’ ratio of 1.36x, which means if you buy MBIA today, you’d be paying a relatively reasonable price for it. And if you believe that MBIA should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since MBIA’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will MBIA generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. With profit expected to grow by 72.46% over the next year, the near-term future seems bright for MBIA. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in MBIA’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at MBIA? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on MBIA, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for MBIA, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on MBIA. You can find everything you need to know about MBIA in the latest infographic research report. If you are no longer interested in MBIA, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.