Is OneMain (OMF) Pricing In Too Much Risk After Recent Share Price Slide

• If you are wondering whether OneMain Holdings at around US$56.83 is pricing in too much risk or leaving value on the table, you are asking the right question.
• The stock has had a mixed run, with a 5.3% decline over the last 7 days and a 13.1% decline over the last 30 days, even though the 1 year, 3 year and 5 year returns sit at 7.4%, 69.2% and 78.4% respectively.
• These moves come as investors continue to reassess consumer credit exposure and funding conditions for personal lenders like OneMain Holdings. This article does not focus on any single headline; instead, it aims to give you context that can sit alongside the news you are already seeing.
• On our framework, OneMain Holdings scores a 5 out of 6 valuation check. This sets up a closer look at how different valuation approaches assess the stock and an even richer way to think about valuation that we will come back to at the end.

Find out why OneMain Holdings's 7.4% return over the last year is lagging behind its peers.

Approach 1: OneMain Holdings Excess Returns Analysis

The Excess Returns model asks a simple question: after covering the cost of equity, how much value does OneMain Holdings add for each dollar of capital its shareholders provide, and how durable does that look over time?

On this model, OneMain starts with a Book Value of $29.02 per share and a Stable EPS estimate of $11.46 per share, based on weighted future Return on Equity estimates from 5 analysts. The implied Average Return on Equity is 34.84%, while the Cost of Equity is $4.05 per share. That leaves an Excess Return of $7.40 per share, which is what the model treats as value created above the required return.

The Stable Book Value is put at $32.88 per share, using weighted future Book Value estimates from 4 analysts. Combining this with the projected excess returns gives an intrinsic value of about $115.86 per share. Compared with the recent share price of roughly $56.83, the model indicates the stock is about 51.0% undervalued.

Result: UNDERVALUED

Our Excess Returns analysis suggests OneMain Holdings is undervalued by 51.0%. Track this in your watchlist or portfolio, or discover 56 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for OneMain Holdings.

Approach 2: OneMain Holdings Price vs Earnings

For a profitable lender like OneMain Holdings, the P/E ratio is a straightforward way to connect what you pay today with the earnings the business is already generating. It is essentially the market’s shorthand for how it weighs the company’s earnings power.

What counts as a “normal” or “fair” P/E usually reflects how investors see growth potential and risk. Higher expected growth or lower perceived risk can line up with a higher P/E, while slower expected growth or higher risk can point to a lower one.

OneMain is currently trading on a P/E of 8.50x. That sits close to the Consumer Finance industry average of 8.17x, but well below the peer average of 46.13x. Simply Wall St’s Fair Ratio for OneMain is 16.36x, which is its own estimate of a reasonable P/E once you factor in the company’s earnings profile, margins, industry, size and risk characteristics.

This Fair Ratio is more tailored than a simple comparison with industry or peer averages because it adjusts for company specific factors rather than assuming all lenders should trade on the same multiple. Comparing the current 8.50x with the 16.36x Fair Ratio points to OneMain looking undervalued on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your OneMain Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St this shows up as Narratives on the Community page, where you and other investors turn your view of OneMain Holdings into a simple story linked directly to a financial forecast and a fair value. You can then compare that fair value with the current share price to frame your own buy or sell decisions, and see it refresh automatically when new earnings or news arrive. For example, one investor might build a Narrative that lines up with the more optimistic fair value of about US$72.29, while another leans on the lower analyst target of US$56.00. Both perspectives sit side by side with their assumptions on future revenue, margins and P/E so you can quickly see which story you find more reasonable.

Do you think there's more to the story for OneMain Holdings? 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.

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