• Wondering if Stifel Financial, at a recent US$69.37 share price, is offering value or just noise? This article breaks down what that price could mean for you.
• The stock is down 1.8% over the past week and 9.2% over the past month, even though the 1 year return sits at 13.4% and the 3 year and 5 year returns are 83.9% and 76.5% respectively.
• Recent headlines around capital markets activity and the broader financial sector have kept investor attention on firms such as Stifel Financial. This backdrop helps explain why a stock with a 13.4% 1 year return can still see shorter term pullbacks of 1.8% over 7 days and 9.2% over 30 days.
• Stifel Financial currently has a valuation score of 4 out of 6, which sets up a closer look at traditional valuation approaches and hints at a more complete way to think about value that will be covered at the end of this article.

Approach 1: Stifel Financial Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to generate above the return required by shareholders, then converts that into a per share value. It focuses on what the company can earn on its equity capital rather than just projecting cash flows.

For Stifel Financial, the model uses a Book Value of US$34.45 per share and a Stable EPS of US$3.52 per share, based on the median return on equity from the past 5 years. The Average Return on Equity is 11.21%, compared with a Cost of Equity of US$2.59 per share. That leaves an Excess Return of US$0.93 per share. The Stable Book Value input is US$31.39 per share, based on the median book value over the same period.

Combining these inputs, the Excess Returns valuation points to an intrinsic value of about US$51.08 per share, compared with the recent share price of US$69.37. This implies the stock is about 35.8% above the model’s estimate of value.

Result: OVERVALUED

Our Excess Returns analysis suggests Stifel Financial may be overvalued by 35.8%. Discover 47 high quality undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Stifel Financial Price vs Earnings

For a profitable company like Stifel Financial, the P/E ratio is a useful way to link what you pay for the stock to what the company currently earns. In general, higher expected growth and lower perceived risk can justify a higher “normal” or “fair” P/E, while lower growth and higher risk often point to a lower multiple.

Stifel Financial trades on a P/E of 12.59x. This sits below the Capital Markets industry average P/E of 39.26x and below the peer group average of 16.03x. On its own, that gap might suggest the stock is priced more conservatively, but simple comparisons to industry and peers do not adjust for the company’s own growth profile, risk and profitability.

Simply Wall St’s Fair Ratio framework attempts to do that by estimating the P/E that could be reasonable for Stifel Financial given factors such as its earnings growth, industry, profit margins, market cap and risk profile. For Stifel Financial, the Fair Ratio is 14.91x, which is higher than the current 12.59x P/E. That difference indicates the stock appears undervalued on this preferred multiple basis.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Stifel Financial Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so meet Narratives, which let you attach a clear story about Stifel Financial’s future revenues, earnings and margins to a forecast and a fair value, then compare that fair value to today’s price to decide whether the stock looks attractive or not.

On Simply Wall St’s Community page, Narratives are an easy tool used by millions of investors that connect a company’s story to the numbers, and they update automatically when fresh data such as news or earnings is added so your view stays current without extra work.

For Stifel Financial, one investor might adopt a higher narrative fair value around US$103.00 based on expectations for adviser recruitment, wealth management growth and ongoing buybacks. Another might lean toward a lower narrative fair value around US$79.00 that puts more weight on recruitment costs, credit risk and revenue variability. Comparing each of those fair values with the current share price helps you consider which story you think is closer to reality and how you might want to act on it.

Do you think there's more to the story for Stifel Financial? Head over to our Community to see what others are saying!

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.