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NMI Holdings, Inc. (NASDAQ:NMIH) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of $28.19 is based on unrealistic expectations. Below I will be talking through a basic metric which will help answer this question.
Exciting times ahead for NMIH
One reason why investors are attracted to NMIH is the high growth potential in the near future. The consensus forecast from 7 analysts is extremely positive with earnings forecasted to rise significantly from today’s level of $1.79 to $3.194 over the next three years. This results in an annual growth rate of 26%, on average, which illustrates a highly optimistic outlook in the near term.
Is NMIH available at a good price after accounting for its growth?
NMI Holdings is trading at quite low price-to-earnings (PE) ratio of 15.74x. This tells us the stock is undervalued relative to the current US market average of 17.45x , and overvalued based on current earnings compared to the Mortgage industry average of 14.21x .
We understand NMIH seems to be overvalued based on its current earnings, compared to its industry peers. But, seeing as NMI Holdings is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 15.74x and expected year-on-year earnings growth of 26% give NMI Holdings a very low PEG ratio of 0.61x. Based on this growth, NMI Holdings’s stock can be considered relatively cheap , based on its fundamentals.
What this means for you:
NMIH’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Are NMIH’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has NMIH been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of NMIH’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.