Why Radian Group (RDN) Has Caught Investor Attention

Radian Group (RDN) is back on investors’ radar after fresh performance figures highlighted its role in the U.S. mortgage insurance market. This has prompted a closer look at how the stock has been trading recently.

Radian Group’s share price, recently at US$34.66, has seen gains over the past week and quarter. However, a weaker 1 month share price return and year to date share price return suggest momentum has cooled, even as multi year total shareholder returns remain positive.

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So with Radian Group trading at US$34.66 alongside an intrinsic value estimate and analyst target that both sit higher, should you see this as a potential discount, or assume the market is already pricing in future growth?

Preferred P/E of 7.7x: Is it justified?

On a P/E of 7.7x, Radian Group looks inexpensive relative to both its peers and the broader US Diversified Financial industry, even with the share price at $34.66.

The P/E multiple compares the current share price to earnings per share and is a common way to see what investors are paying for each dollar of profit. For a mortgage insurer with established earnings, this is a straightforward yardstick for how the market is valuing its profit stream.

Radian Group is described as trading at good value versus peers and industry, with its 7.7x P/E below the peer average of 9.1x and well below the US Diversified Financial industry average of 15.2x. It is also below an estimated fair P/E of 12.6x. This is a level the market could move toward if sentiment and expectations around its earnings profile shift.

That gap between the current 7.7x P/E and the 12.6x fair P/E hints at a meaningful valuation disconnect, especially considering the company is seen as having high quality earnings and has grown earnings by 1.1% per year over the past 5 years.

Result: Price-to-earnings of 7.7x (UNDERVALUED)

However, recent share price softness over 1 month and year to date, along with concentrated exposure to the U.S. mortgage market, could challenge any simple undervaluation story.

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Another View: Cash Flows Point to a Deeper Discount

While the 7.7x P/E hints at value, our DCF model shows an estimated future cash flow value of $105.13 per share compared with the current $34.66 price. That gap suggests the real question is not whether Radian Group is cheap, but why the discount exists.

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 44 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 the combination of potential value and recent share price hesitation has you interested, consider reviewing the latest numbers and assessing the situation for yourself, beginning with the 5 key rewards

Looking for more investment ideas?

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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.