Does the Recent 8.4% Drop Present an Opportunity in NMI Holdings Stock?

If you are keeping an eye on NMI Holdings, you are not alone. Deciding what to do with this stock has gotten a bit more interesting in recent months, whether you are holding, buying more, or waiting for a better entry point. After all, NMI Holdings has seen some notable swings, with the stock price down 1.7% in the last week and off 8.4% over the past month, leaving it at $35.95 at last close. If you zoom out, though, the story gets more compelling. Over three and five year periods, NMI Holdings shares are still up an impressive 67.1% and 60.0%, respectively, which hints at enduring growth potential despite recent declines.

Recent news for NMI Holdings centers on steady business execution and ongoing resilience in the mortgage insurance market. There have been broader shifts in the financial sector, and investor sentiment overall has gotten a touch more cautious, but nothing in the headlines suggests specific operational risks for NMI. Instead, what stands out is the company's consistency while many peers have faced bigger headwinds.

So, is now a smart time to get involved? For valuation-focused investors, the initial hint is pretty clear. NMI Holdings scores a 6 out of 6 on our value checklist, meaning the company currently looks undervalued by every method we track. That high of a score is rare, and it is a solid signal that there could be more to this stock than meets the eye. Next, let’s dig into the specific valuation approaches we use; stick around for a nuanced perspective on what those numbers might really mean.

Why NMI Holdings is lagging behind its peers

Approach 1: NMI Holdings Excess Returns Analysis

The Excess Returns valuation model focuses on how much value a company generates above the minimum required by its investors, based on the returns it earns on its equity. Instead of just looking at profits, this approach centers on the company's ability to deliver returns that outpace its cost of equity. This gives investors an idea of the quality and sustainability of future growth.

For NMI Holdings, key metrics drive the analysis:

• Book Value: $31.14 per share
• Stable Earnings Per Share (EPS): $5.63 per share (Source: Weighted future Return on Equity estimates from 4 analysts.)
• Cost of Equity: $2.98 per share
• Excess Return: $2.66 per share
• Average Return on Equity: 14.60%
• Stable Book Value: $38.59 per share (Source: Weighted future Book Value estimates from 3 analysts.)

Based on the Excess Returns model, the estimated intrinsic value for NMI Holdings stands at $96.00 per share. With a recent market price of $35.95, the analysis suggests the stock is trading at a 62.6% discount to its fair value, indicating significant undervaluation according to this approach. For investors focused on quality and return potential, this may present a compelling case.

Result: UNDERVALUED

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

Our Excess Returns analysis suggests NMI Holdings is undervalued by 62.6%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: NMI Holdings Price vs Earnings

For profitable companies like NMI Holdings, the Price-to-Earnings (PE) ratio is a valuable metric because it shows how much investors are willing to pay today for a dollar of the company’s earnings. The PE ratio not only reflects the company’s current profitability but also incorporates growth expectations and perceived risk. A fast-growing or low-risk company usually commands a higher PE, while slower growth or higher risk means a lower ratio is justified.

NMI Holdings currently trades at a PE ratio of 7.38x. In comparison, the average for its Diversified Financial industry peers is 12.64x, and the wider industry average sits even higher at 16.52x. This means NMI Holdings is being valued more conservatively by the market based on its earnings than many of its competitors or the industry as a whole.

The next layer in the analysis is the "Fair Ratio", a proprietary metric from Simply Wall St. The Fair Ratio for NMI Holdings is 12.81x, which is calculated by analyzing numerous factors including the company’s earnings growth rate, industry outlook, profit margins, company size, and overall risk profile. Unlike a simple peer or industry comparison, the Fair Ratio offers a more tailored benchmark because it adjusts for both company-specific strengths and risks, giving a better context for what’s really fair.

Comparing NMI Holdings’ current PE of 7.38x to its Fair Ratio of 12.81x underscores significant undervaluation. This suggests the stock may be priced too cheaply relative to its true quality and outlook, offering potential for upside if the market adjusts its perceptions.

Result: UNDERVALUED

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

Upgrade Your Decision Making: Choose your NMI Holdings Narrative

Earlier we mentioned that there is an even better way for investors to make sense of valuation. Let’s introduce you to Narratives. A Narrative is simply a story that connects your perspective on a company, like NMI Holdings, to a set of projected numbers, such as estimates for future revenue, earnings and profit margins, and then links all that to an estimated fair value.

Narratives bridge the gap between the company’s story and its forecasted financials, helping you track how assumptions about growth or risk translate into what you think the shares are really worth. This approach is user-friendly and available for anyone to use within the Simply Wall St Community page, where millions of investors share different Narratives for companies like NMI Holdings.

Unlike static traditional models, Narratives update automatically when new news or earnings releases arrive. This ensures your fair value estimate stays current. With Narratives, you can easily compare the Fair Value from different perspectives to the current Price and decide, based on your own or others’ assumptions, if now is the right moment to buy, sell, or hold.

For example, one investor’s Narrative for NMI Holdings might be bullish, forecasting future earnings per share of $5.45 and a price target of $49.00. A more cautious Narrative could assume slower growth and land on a fair value of just $41.00.

Do you think there's more to the story for NMI Holdings? Create your own Narrative to let the Community know!

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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