Let's talk about the popular Legal & General Group Plc (LON:LGEN). The company's shares received a lot of attention from a substantial price increase on the LSE over the last few months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Legal & General Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What is Legal & General Group 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 Legal & General Group’s ratio of 8.58x is trading slightly below its industry peers’ ratio of 12.77x, which means if you buy Legal & General Group today, you’d be paying a reasonable price for it. And if you believe that Legal & General Group should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Furthermore, Legal & General Group’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What does the future of Legal & General Group look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. Legal & General Group’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? LGEN’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 LGEN? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping an eye on LGEN, 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 LGEN, 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 Legal & General Group. You can find everything you need to know about Legal & General Group in the latest infographic research report. If you are no longer interested in Legal & General Group, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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