Genworth Financial, Inc. (NYSE:GNW), which is in the insurance business, and is based in United States, saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. As a US$2.1b market cap stock, it seems odd Genworth Financial is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, 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 Genworth Financial’s outlook and valuation to see if the opportunity still exists.
What is Genworth Financial worth?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Genworth Financial’s ratio of 13.34x is trading slightly below its industry peers’ ratio of 15.48x, which means if you buy Genworth Financial today, you’d be paying a fair price for it. And if you believe Genworth Financial should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Genworth Financial’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of Genworth Financial look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to more than double over the next couple of years, the future seems bright for Genworth Financial. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? GNW’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at GNW? 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 tabs on GNW, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for GNW, which means it’s worth diving deeper into 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 Genworth Financial. You can find everything you need to know about Genworth Financial in the latest infographic research report. If you are no longer interested in Genworth Financial, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.