Radian Group (RDN) Beat Expectations, Is The Valuation Gap Too Wide?

Event overview and why Radian Group matters now

Radian Group (RDN) recently reported quarterly results that came in ahead of expectations, supported by stronger net premiums earned, higher new insurance written, and solid investment income, while also executing share repurchases and paying dividends.

Radian Group's share price has eased about 6% over the past month but is still up roughly 8% over 90 days and modestly higher year to date, while the total shareholder return of about 51% over three years and 95% over five years points to strong longer term compounding for investors who stayed invested through recent swings.

Compare Radian Group's momentum and valuation reset to a curated group of resilient financial stocks in our 82 resilient stocks with low risk scores.

After a solid multi year run and a recent 6% pullback, Radian Group now sits at an interesting crossroads. Does the current set up still leave enough upside to justify the mortgage credit risk that comes with the stock?

Preferred P/E of 8.7x for Radian Group: Is it justified?

On the numbers, Radian Group looks inexpensive relative to its own earnings. The stock last closed at $36.66 and is flagged as trading at good value, with the P/E ratio of 8.7x seen as favorable compared with both peers and the broader US Diversified Financial industry.

The P/E ratio compares the current share price with earnings per share. For a mortgage insurance business like Radian Group, it gives a quick sense of how much investors are willing to pay for current earnings in a sector where credit cycles and housing conditions matter a lot for profitability.

Several data points support the idea that the current P/E leaves room for differing views. Radian Group is assessed as trading at good value versus peer averages, with the 8.7x P/E below the peer average of 9.1x and well below the US Diversified Financial industry average of 17.3x. Against an estimated fair P/E of 12.6x, the current multiple is also described as good value. This suggests that if sentiment or earnings expectations shift, the market could potentially move closer to that fair ratio level.

Compared with the wider industry, the gap is even clearer. An 8.7x P/E against an industry average of 17.3x implies investors are currently assigning a lower earnings multiple to Radian Group than to many diversified financial stocks, even though the company is assessed as trading at good value relative to both peers and the industry.

Explore the SWS fair ratio for Radian Group

Result: Price-to-earnings of 8.7x (UNDERVALUED)

However, you still need to watch for a sharp housing slowdown or a spike in mortgage delinquencies, as either could quickly challenge the current Radian Group valuation story.

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

Another view on Radian Group using cash flows

The earnings based P/E view points to Radian Group looking inexpensive, but the SWS DCF model presents an even stronger picture. With the stock at $36.66 and the model indicating a future cash flow value of $112.27, Radian Group appears heavily undervalued on this approach. Could the gap be justified by mortgage cycle risks, or is the market mispricing the cash flows?

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 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

With mixed signals around Radian Group, it is worth checking the numbers yourself rather than relying on headlines or short term moves. To see how the positives and concerns balance out, review the 4 key rewards and 1 important warning sign.

Looking for more investment ideas beyond Radian Group?

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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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