Radian Group (RDN) Valuation Check After Recent Share Price Weakness

Radian Group (RDN) has drawn investor attention recently, as its share price has declined 5.5% over the past month and 8.3% over the past 3 months.

See our latest analysis for Radian Group.

While the recent 5.5% one month share price return and 8.3% three month share price return are negative, Radian Group’s 3 year total shareholder return of 66.24% and 5 year total shareholder return of 65.26% suggest longer term holders have still seen solid gains. Recent momentum appears to be fading rather than setting a clear new trend.

If you are weighing Radian Group against other opportunities in financials and beyond, this could be a good time to broaden your search and check out 20 top founder-led companies

With Radian Group trading at $33.02, sitting about 20% below analyst price targets and with an intrinsic value estimate at a large discount, you have to ask: is there a genuine opportunity here, or is the market already pricing in its future growth?

Price-to-Earnings of 7.3x: Is it justified?

On a P/E of 7.3x, Radian Group screens as cheaper than both its closest peers on 8.3x and the broader US Diversified Financials average on 15.8x. That gap suggests the current $33.02 share price is not reflecting the same earnings valuation multiple applied elsewhere in the sector.

The P/E ratio simply tells you how much investors are paying today for each dollar of current earnings. For a mortgage insurance business like Radian Group, where earnings are a key focus, this is a commonly used yardstick for comparing companies that are already profitable.

Here, the message is consistent across several angles. Radian Group is described as trading at good value versus peers and industry, and its 7.3x P/E is also below an estimated fair P/E of 11.2x. If the market price and multiple were to move closer to that fair ratio, it would imply a higher valuation being placed on the same earnings base.

Relative to the US Diversified Financials industry at 15.8x, the current 7.3x multiple is far lower and points to a sizeable valuation gap. Compared to the peer average on 8.3x, the discount is smaller but still present, which reinforces the idea that the stock is currently priced at a lower earnings multiple than many similar companies.

Explore the SWS fair ratio for Radian Group

Result: Price-to-Earnings of 7.3x (UNDERVALUED)

However, you also need to weigh risks such as potential shifts in US housing or credit conditions, and any change in mortgage insurance demand affecting Radian Group’s $1,197.084m revenue base.

Find out about the key risks to this Radian Group narrative.

Another View: What the DCF Model Suggests

While the P/E of 7.3x points to good value, the SWS DCF model tells an even stronger story. On this view, Radian Group at $33.02 is compared with an estimate of future cash flow value of $111.87, implying a very large valuation gap. Is this a margin of safety or a sign that expectations are too optimistic?

Look into how the SWS DCF model arrives at its fair value.

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 63 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

This mix of potential upside and clear trade offs will mean different things to different investors, so it makes sense to review the data for yourself and decide how much risk and reward you are comfortable taking on. A good place to start is by weighing up the 4 key rewards and 1 important warning sign

Looking for more investment ideas?

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• Zero in on potential value opportunities that pair quality with attractive pricing by checking the 63 high quality undervalued stocks.
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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.

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