A Fresh Look at iA Financial (TSX:IAG) Valuation Following Strong Earnings and Share Buyback Initiatives

iA Financial (TSX:IAG) just reported a strong year-over-year boost in both net income and earnings per share for the latest quarter, highlighting operational progress and focused capital management efforts.

See our latest analysis for iA Financial.

Momentum has clearly been building for iA Financial, with the stock’s share price climbing 27.0% year-to-date and total shareholder return reaching an impressive 32.1% over the past year. Announcements of higher dividends, a sizeable share buyback program, and recent insider buying help explain why investor confidence appears on the rise. This signals belief in the company's ability to execute for the long term.

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The stock’s strong run and continued shareholder returns raise a key question. Is iA Financial still trading at an attractive value, or has the market already accounted for the company’s growth in its current price?

Price-to-Earnings of 14.1x: Is it justified?

While iA Financial is trading at a price-to-earnings (P/E) ratio of 14.1x, this puts the stock slightly above both the North American insurance sector average and the estimated fair P/E. With the last close at CA$167.11, the current P/E suggests the market may be pricing in optimism beyond what sector peers command.

The P/E ratio measures how much investors are willing to pay for each dollar of earnings, making it a popular gauge of valuation for insurance and financial companies. For iA Financial, the current P/E is not only above the North American industry average of 13.6x, but also stands higher than the stock's estimated fair ratio of 13.2x. This signals some expectation of outperformance, but also hints that shares may be running hot by historical standards.

However, it is worth noting that while the stock appears expensive compared to industry norms and fair ratio calculations, it remains slightly cheaper than the peer group average of 15.2x. This dynamic puts iA Financial in a middle ground, priced for solid performance but not at an extreme premium or discount.

Explore the SWS fair ratio for iA Financial

Result: Price-to-Earnings of 14.1x (OVERVALUED)

However, macroeconomic swings or weaker sector earnings in the future could quickly shift sentiment and put pressure on iA Financial's valuation from current levels.

Find out about the key risks to this iA Financial narrative.

Another View: What Does Our DCF Model Say?

Switching gears from earnings multiples, the SWS DCF model takes a cash flow perspective and finds iA Financial is trading at a steep 54.7% discount to its estimated fair value. This result stands in sharp contrast to the above-average P/E ratio and challenges the idea that shares are expensive. Does this suggest a hidden opportunity, or might the market see risks the DCF does not capture?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out iA Financial for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 882 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own iA Financial Narrative

If you want to dig deeper or have a different take on iA Financial’s outlook, you can create your own unique narrative in just a few minutes. Do it your way

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding iA Financial.

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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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