Prudential Financial, Inc. (NYSE:PRU) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of $84.82 is based on unrealistic expectations. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.
Where’s the growth?
Prudential Financial is poised for extremely high earnings growth in the near future. Expectations from 11 analysts are extremely positive with earnings per share estimated to surge from current levels of $9.994 to $13.556 over the next three years. This indicates an estimated earnings growth rate of 15% per year, on average, which indicates an exceedlingly positive future in the near term.
Is PRU’s share price justified by its earnings growth?
Stocks like Prudential Financial, with a price-to-earnings (P/E) ratio of 8.49x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that PRU is undervalued relative to the current US market average of 17.42x , and undervalued based on its latest annual earnings update compared to the Insurance average of 15.48x .
We already know that PRU appears to be undervalued based on its PE ratio, compared to the industry average. But, to be able to properly assess the value of a high-growth stock such as Prudential Financial, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 8.49x and expected year-on-year earnings growth of 15% give Prudential Financial a very low PEG ratio of 0.56x. So, when we include the growth factor in our analysis, Prudential Financial appears relatively cheap , based on the fundamentals.
What this means for you:
PRU’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 PRU’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 PRU 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 PRU’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 email@example.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.