Radian Group stock moves after recent performance shift

Radian Group (RDN) has drawn fresh attention after a recent pullback, with the stock down about 7% over the past week and about 6% year to date, prompting investors to reassess its profile.

Recent trading has been choppy, with the share price slipping over the past week and month while the latest close sits at $33.79. However, the 1-year and multi year total shareholder returns remain positive, suggesting earlier momentum is now cooling.

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With Radian Group trading at $33.79, carrying solid recent revenue and net income figures and sitting at a discount to analyst targets and some intrinsic estimates, is the stock undervalued or already pricing in future growth?

Price to earnings of 7.5x: Is it justified?

On earnings, Radian Group looks cheap relative to peers, with a P/E of 7.5x at a last close of $33.79 suggesting the market is putting a lower tag on each dollar of profit than many competitors.

The P/E ratio compares the share price to earnings per share and is a common yardstick for financial stocks, because it links valuation directly to current profitability. With Radian Group trading on 7.5x against the US Diversified Financial industry average of 17.7x and a peer average of 9.7x, the stock is priced at a discount on this metric.

Our analysis also compares this 7.5x P/E to an estimated fair P/E of 13x, which implies meaningful room for the valuation multiple to move closer to levels suggested by the fair ratio work. If that gap closes over time, it would reflect a market view that current earnings are worth more than the stock is priced for today.

Result: Price-to-earnings of 7.5x (UNDERVALUED)

However, the story can change quickly if US housing activity weakens or if mortgage credit losses rise, which could pressure both earnings and investor sentiment.

Another view: cash flow paints an even cheaper picture

While the P/E of 7.5x already suggests Radian Group is inexpensive, the SWS DCF model goes further, putting future cash flow value at $103.70 per share versus the current $33.79. That gap points to a very large implied discount, but how comfortable are you with the assumptions behind it?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Radian Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 47 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Between those concerns and positives, sentiment on Radian Group is clearly mixed. Consider reviewing the numbers yourself and weighing up the 5 key rewards and 1 important warning sign.

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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.