Does Principal Financial Still Offer Opportunity After Digital Expansion and Five-Year 143% Price Surge?

Thinking about what to do with Principal Financial Group stock? You are not alone. With markets as active as ever, questions around valuation and growth prospects are front and center for many investors. Principal Financial has seen its share price climb 1.3% in the last week and is up 2.9% for the year, but those strong short-term moves contrast with a dip of 3.6% over the past month and a slight decline of 1.3% over the last year. Zooming out even further, though, this is a stock with a remarkable 143.6% gain over five years, underscoring its ability to deliver for longer-term shareholders.

What is driving these shifts? The company has recently made headlines for its ongoing commitment to expanding retirement offerings and digital transformation efforts. This focus is seen by some as a smart bet amid changing demographics and technology demands in the financial sector. While these moves have caught the attention of analysts, the market's response has been mixed, with some investors reassessing risk and opportunity as industry trends evolve.

On the valuation front, Principal Financial Group clocks in with a score of 3 out of 6 on our undervaluation checklist. This means the company appears undervalued by half the standard metrics we look at. That is a solid starting point, but it will take a closer look at the numbers and a few insider tips to truly pin down whether the stock deserves a place in your portfolio. Next up, let’s break down the main valuation methods investors use before I share an even more revealing approach later in the article.

Why Principal Financial Group is lagging behind its peers

Approach 1: Principal Financial Group Excess Returns Analysis

The Excess Returns valuation model focuses on how much profit a company generates above the minimum required return on its equity. It effectively measures its ability to create shareholder value over time. This approach is valued for reflecting the real economic value produced by a firm and emphasizes both the sustainability and growth potential of its returns on invested capital.

For Principal Financial Group, the latest numbers offer a detailed snapshot:

• Book Value: $51.15 per share
• Stable EPS: $8.76 per share (sourced from consensus return on equity forecasts)
• Cost of Equity: $3.88 per share
• Annual Excess Return: $4.88 per share
• Average Return on Equity: 15.30%
• Stable Book Value: $57.27 per share (sourced from analyst projections)

When these data points are incorporated into the model, Principal Financial's intrinsic value per share is estimated at $189.29. Compared to the current market price, this suggests the stock is trading at a substantial 57.9% discount based on its ability to consistently deliver returns above its cost of equity.

For investors seeking long-term value, this excess returns approach indicates Principal Financial Group is significantly undervalued at today’s prices.

Result: UNDERVALUED

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

Our Excess Returns analysis suggests Principal Financial Group is undervalued by 57.9%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Principal Financial Group Price vs Earnings

For companies that are firmly profitable, the Price-to-Earnings (PE) ratio is a widely accepted and insightful valuation metric. The PE ratio helps investors quickly gauge how much they are paying for each dollar of a company’s earnings. It reflects both the market’s growth expectations and risk assessment. A higher projected growth or lower risk often justifies a higher PE, while lower growth or higher risk tends to pull the ratio down.

Principal Financial Group’s current PE ratio stands at 15.56x. For context, this is above the average for its insurance industry peers (11.85x) and the broader industry itself (13.47x). Looking simply at these benchmarks, Principal appears somewhat expensive compared to others in its space.

However, the notion of a “Fair Ratio” brings deeper insight. Simply Wall St’s Fair Ratio for Principal comes in at 19.33x, reflecting adjustments for the company’s stronger earnings growth prospects, risk profile, margins, and its position within the broader market. Unlike a basic industry or peer comparison, this figure is tailored specifically to Principal’s unique factors. It offers a much more comprehensive gauge of value.

Comparing the Fair Ratio to the company’s actual PE shows Principal Financial Group trades at a meaningful discount to its fair value multiple. This suggests the stock is attractively priced when accounting for its fundamentals and outlook.

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 Principal Financial Group Narrative

Earlier, we hinted at an even smarter way to analyze stocks. Let’s introduce you to Narratives. A Narrative is simply your story behind a company: you decide what you believe about Principal Financial Group’s future, including its revenue growth, margins, and fair value, and connect those beliefs to a financial forecast. Narratives let you go beyond just looking at numbers, showing how your perspective links to an estimated fair value so you can clearly see if the stock is a buy or sell at today’s price.

This approach is both intuitive and accessible, available to everyone on the Simply Wall St platform’s Community page, where millions of investors share and update their Narratives in real time. As news or earnings are released, Narratives automatically recalculate, adapting so your thesis always reflects the latest data.

For example, within the Principal Financial Group Community, one Narrative might forecast strong global asset growth and set a fair value of $101 per share, while another, more cautious outlook might highlight competitive risks and peg fair value at $72 per share. With Narratives, you can easily compare your own assumptions against the current price and the full spectrum of real investor perspectives, giving you a dynamic, story-driven roadmap for your next investing decision.

Do you think there's more to the story for Principal Financial Group? 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com