Radian Group stock snapshot after recent performance shift

Radian Group (RDN) has drawn fresh attention after a mixed stretch for the stock, with a small gain in the past day, a decline over the past week, and positive moves over the past month and over the past three months.

At a share price of $36.93, Radian Group’s recent pattern shows short term momentum fading after a 7 day share price return that declined 2.97%, while longer term total shareholder returns of 9.19% over 1 year and 87.36% over 5 years highlight a stronger background trend.

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With Radian Group trading at $36.93, a value score of 5, an indicated intrinsic discount of 65.65%, and a 14.81% gap to analyst targets, you have to ask: is there a buying opportunity here, or is the market already pricing in future growth?

Price-to-earnings of 8.2x: Is it justified?

On a P/E of 8.2x at a share price of $36.93, Radian Group screens as good value compared with both peers and the wider US diversified financials industry.

The P/E ratio compares the current share price with earnings per share, so it reflects how much you are paying for each dollar of profit. For a mortgage insurance business with $595.56m of net income, the current multiple suggests the market is not assigning a premium to those profits.

Radian Group’s P/E of 8.2x sits below the peer average of 10x and is well below the US diversified financial industry average of 16.9x, which points to a clear discount. Against an estimated fair P/E of 12.9x, the gap is even wider, which indicates a level the market could move towards if sentiment and fundamentals stay aligned with that fair ratio framework.

Result: Price-to-earnings of 8.2x (UNDERVALUED)

However, you still need to weigh risks such as declining annual revenue and Radian Group’s heavy reliance on the US mortgage market for all its income.

Another view on value: DCF paints a different picture

While the P/E of 8.2x suggests Radian Group is on the cheap side, the SWS DCF model takes a more aggressive stance. It shows an estimated future cash flow value of $107.50 versus the current $36.93 share price, which implies the stock is undervalued on this framework.

If the P/E discount hints at value, the SWS DCF model amplifies that signal and raises a tougher question: is the market too cautious, or is the cash flow model too optimistic about what Radian Group can deliver over time?

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 51 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

If this combination of value signals and cautionary flags seems balanced, review the details carefully and decide where you stand, starting with the 4 key rewards

Looking for more investment ideas?

Do not stop with a single stock. The best portfolios come from comparing different types of opportunities, so keep testing fresh ideas before making your next move.

• Target dependable income by reviewing 13 dividend fortresses that focus on higher yields backed by solid fundamentals.
• Hunt for value by checking 51 high quality undervalued stocks that combine quality financials with prices that lag their underlying metrics.
• Protect your downside by scanning 65 resilient stocks with low risk scores that rate well on stability while still offering room for potential upside.

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.