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Should Value Investors Consider Radian Group (RDN) Stock?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Radian Group Inc. (RDN - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Radian Group has a trailing twelve months PE ratio of 12.2, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 21.4. If we focus on the long-term PE trend, Radian Group’s current PE level puts it above its midpoint over the past five years.
Further, the stock’s PE also compares favorably with the Zacks Multi Line industry’s trailing twelve months PE ratio, which stands at 14.3. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Radian Group has a forward PE ratio (price relative to this year’s earnings) of just 12.1which is roughly in line with the current level. Hence the forward earnings estimates are already incorporated in the company’s current share price.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management, and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Radian Group’s P/CF ratio of 18.7 is lower than industry average of 28.9, which indicates that the stock is undervalued in this respect.
Broad Value Outlook
In aggregate, Radian Group currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Radian Group a solid choice for value investors.
What About the Stock Overall?
Though Radian Group might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of C and a Momentum Score of B. This gives RDN a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been pretty encouraging. The current quarter has seen one estimate to go higher in the past sixty days compared to none lower, while the full year estimate has also seen one upward and no downward movement in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has risen by 2.3% in the past two months, while the full year estimate has inched up by 1.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This bullish trend is why the stock has just a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.
Bottom Line
Radian Group is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 38% out of more than 250 industries), it is hard to get too excited about this company overall. In fact, over the past two years, the industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
Image: Bigstock
Should Value Investors Consider Radian Group (RDN) Stock?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Radian Group Inc. (RDN - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Radian Group has a trailing twelve months PE ratio of 12.2, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 21.4. If we focus on the long-term PE trend, Radian Group’s current PE level puts it above its midpoint over the past five years.
Further, the stock’s PE also compares favorably with the Zacks Multi Line industry’s trailing twelve months PE ratio, which stands at 14.3. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Radian Group has a forward PE ratio (price relative to this year’s earnings) of just 12.1which is roughly in line with the current level. Hence the forward earnings estimates are already incorporated in the company’s current share price.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management, and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Radian Group’s P/CF ratio of 18.7 is lower than industry average of 28.9, which indicates that the stock is undervalued in this respect.
Broad Value Outlook
In aggregate, Radian Group currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Radian Group a solid choice for value investors.
What About the Stock Overall?
Though Radian Group might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of C and a Momentum Score of B. This gives RDN a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been pretty encouraging. The current quarter has seen one estimate to go higher in the past sixty days compared to none lower, while the full year estimate has also seen one upward and no downward movement in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has risen by 2.3% in the past two months, while the full year estimate has inched up by 1.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Radian Group Inc. Price and Consensus
Radian Group Inc. Price and Consensus | Radian Group Inc. Quote
This bullish trend is why the stock has just a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.
Bottom Line
Radian Group is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 38% out of more than 250 industries), it is hard to get too excited about this company overall. In fact, over the past two years, the industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>