Is Fairfax Financial a Bargain After 470% Five Year Surge and Global Acquisition Push?

• Wondering if Fairfax Financial Holdings is fairly priced or a hidden bargain? You are not alone, as many investors are watching closely to see if now is the right time to jump in or hold steady.
• The stock has delivered a steady 21.7% gain year-to-date, with a 6.8% bump in the last month and an eye-catching 470.0% return over five years, catching the attention of both long-term holders and newcomers.
• Recent headlines have highlighted Fairfax’s ongoing global acquisitions strategy. The company is expanding its international insurance footprint and drawing both praise and scrutiny from analysts. These deals, along with market chatter about sector consolidation, have contributed to a renewed debate around the company’s true worth.
• Right now, Fairfax scores 5 out of 6 on our valuation checks, suggesting it is undervalued across most key measures. However, as you will see, traditional ratios do not always tell the whole story, and there is an even better way to assess its value coming up later in the article.

Fairfax Financial Holdings delivered 22.5% returns over the last year. See how this stacks up to the rest of the Insurance industry.

Approach 1: Fairfax Financial Holdings Excess Returns Analysis

The Excess Returns valuation method estimates how much more profit a company generates on its invested capital compared to the minimum return required by shareholders, known as the cost of equity. This approach focuses on sustainable profitability and growth in book value to determine a company’s intrinsic worth.

For Fairfax Financial Holdings, analysts estimate a stable earnings per share (EPS) of CA$200.63, derived from future return on equity projections by six analysts. The company’s current book value per share stands at CA$1,203.65, with a cost of equity assessed at CA$82.57 per share. The resulting excess return is CA$118.07 per share, and the projected stable book value is CA$1,349.56 per share. The average return on equity is a healthy 14.87%, which is considered strong for the sector.

Based on these inputs, the Excess Returns model calculates the estimated intrinsic value of Fairfax Financial Holdings at 64.5% below its current share price. This suggests the shares are significantly undervalued compared to what the company should be worth if it maintains its current performance.

Result: UNDERVALUED

Our Excess Returns analysis suggests Fairfax Financial Holdings is undervalued by 64.5%. Track this in your watchlist or portfolio, or discover 920 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Fairfax Financial Holdings.

Approach 2: Fairfax Financial Holdings Price vs Earnings

The price-to-earnings (PE) ratio is a widely used metric for assessing the value of profitable companies like Fairfax Financial Holdings. It relates the company’s current share price to its earnings per share, making it a practical tool for comparing a company’s valuation against its historical averages, peers, and the broader industry.

What counts as a “normal” or “fair” PE ratio depends on a company’s growth prospects and risk profile. Higher growth expectations or lower risk typically justify a higher PE, whereas mature or riskier businesses tend to command lower multiples. Currently, Fairfax trades at a PE ratio of 8.1x, which is well below both the insurance industry average of 11.7x and the peer group average of 16.6x. This suggests the market may be undervaluing the stock relative to broader benchmarks.

A more nuanced approach is to use the Simply Wall St “Fair Ratio,” which is calculated based on factors such as Fairfax’s earnings growth potential, profit margins, risks, size, and its place within the industry. This method goes beyond broad peer or industry comparisons by considering what is actually reasonable for Fairfax specifically. For Fairfax Financial Holdings, the Fair Ratio is set at 8.3x. Since this is just above the company’s current PE ratio, the stock appears to be priced about right based on its bespoke Fair Ratio.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Fairfax Financial Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your story about a company, combining your perspective on its future prospects with your own assumptions about fair value, expected revenue, earnings, and profit margins. More than just numbers, Narratives connect the company’s bigger picture such as strategy, risks, growth drivers, and industry changes to your financial forecast, resulting in a unique fair value estimate.

Narratives are a flexible and accessible tool available to all investors through Simply Wall St’s platform, where millions contribute their perspectives in the Community page. By comparing your own Narrative-driven Fair Value with the current market price, you gain clarity on whether it is time to buy, hold, or sell. The Narrative is updated automatically whenever new information, such as earnings or news, emerges.

For example, one investor might take a cautious view due to currency risks and project a fair value of only CA$1,649 per share, while another sees long-term value creation from acquisitions and capital discipline, giving a bullish fair value above CA$2,990 per share. Your Narrative reflects what you believe, not just what analysts expect, making it a practical, dynamic guide for smarter decision making.

Do you think there's more to the story for Fairfax Financial Holdings? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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