American Financial Group, Inc. (NYSE:AFG), which is in the insurance business, and is based in United States, saw a significant share price rise of over 20% in the past couple of months on the NYSE. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s take a look at American Financial Group’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Is American Financial Group still cheap?
According to my price multiple model, which makes a comparison between the company’s price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 7.12x is currently trading slightly below its industry peers’ ratio of 8.57x, which means if you buy American Financial Group today, you’d be paying a reasonable price for it. And if you believe American Financial Group should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. In addition to this, it seems like American Financial Group’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.
Can we expect growth from American Financial Group?
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. Though in the case of American Financial Group, it is expected to deliver a negative earnings growth of -5.6%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? AFG seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on AFG, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on AFG for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on AFG should the price fluctuate below the industry PE ratio.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on American Financial Group. You can find everything you need to know about American Financial Group in the latest infographic research report. If you are no longer interested in American Financial 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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