Everyone is selling, the charts are red, but should you panic? Not at all. As a long term investor, my favorite time of the economic cycle is when great stocks sell at an unjustified discount. Today I want to bring to light the market’s darling – Principal Financial Group, Inc.. Looking at its size, financial health and track record, I believe there’s an opportunity with Principal Financial Group during these volatile times.
View our latest analysis for Principal Financial Group
Principal Financial Group, Inc. provides retirement, asset management, and insurance products and services to businesses, individuals, and institutional clients worldwide. Started in 1879, and headed by CEO Daniel Houston, the company employs 16.48k people and has a market cap of US$15b, putting it in the large-cap stocks category. Volatility in the market is hardly detrimental to the financial health and business operations of a large, well-established company. Although some monetary and fiscal policy changes may impact some corporate financing decisions and strategy, what we’ve learnt over time is that these companies tend to adapt. And having a strong balance sheet and a history of proven success aids in this adaptability.
Currently Principal Financial Group has US$3.3b on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. With an interest coverage ratio of 11.17x, Principal Financial Group produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Moreover, its operating cash flows amply covers its total debt by 155%, which is higher than the bare minimum requirement of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning PFG’s financial strength will continue to let it thrive in a fickle market.
PFG’s annual earnings growth rate has been positive over the last five years, with an average rate of 18%, beating the industry growth rate of 4.0%. It has also returned an ROE of 13% recently, above the industry return of 8.0%. Characteristics I value in a long term investment are proven in Principal Financial Group, and I can continue to sleep easy at night with the stock as part of my portfolio.
Next Steps:
Principal Financial Group makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with Principal Financial Group? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:- Future Outlook: What are well-informed industry analysts predicting for PFG’s future growth? Take a look at our free research report of analyst consensus for PFG’s outlook.
- Valuation: What is PFG worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether PFG is currently mispriced by the market.
- 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 editorial-team@simplywallst.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. Thank you for reading.