Radian Group (RDN) Looks Cheap As Mixed Returns Put Fair Value Back In Focus

Radian Group (RDN) moved modestly higher in the latest session, with the share price closing at $34.04. Recent trading has been mixed, with the stock down over the past month and the past three months.

Radian Group’s recent 1-day share price gain of 1.31% and 7-day share price return of 0.50% come after a softer patch, with the 30-day share price return down 2.77% and the 90-day share price return down 11.54%. However, longer term momentum looks firmer given a 1-year total shareholder return of 4.44% and a 5-year total shareholder return of 64.39%.

Scan how Radian Group's recent mixed returns compare with other financials by reviewing a hand picked set of list of solid balance sheet and fundamentals (25 results) in similar sectors.

Radian Group has cooled off in recent months even after building solid multi year total returns. Is most of the easy upside already in the rearview mirror, or does the current valuation still leave meaningful room ahead?

Price-to-Earnings of 8.1x: Is it justified?

On simple valuation terms, Radian Group trades on a P/E of 8.1x, which screens as inexpensive compared with both peers and the broader US diversified financials group.

The P/E ratio compares what investors are paying for each dollar of earnings. For a mortgage insurer like Radian Group, this metric often reflects how the market weighs its earnings power against the risks in its credit book and housing exposure.

Radian Group's earnings are described as high quality and the shares are flagged as good value against peers, the industry, and an estimated fair P/E of 10.4x. That combination highlights that the current 8.1x level is materially lower than the estimated fair P/E.

The discount is also clear in the direct industry comparison. Radian Group trades on a P/E of 8.1x, while the US diversified financial industry sits at 17x, and the stock is also below the estimated fair P/E of 10.4x. This points to a meaningful valuation gap relative to both peers and the fair value estimate.

Explore the SWS fair ratio for Radian Group.

Result: Price-to-Earnings of 8.1x (UNDERVALUED)

Still, Radian Group faces clear pressure points, including its concentrated exposure to US housing credit and any shift in mortgage origination volumes or credit standards.

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

Another View: What The DCF Model Says About Radian Group

A different lens gives a very different story. Our DCF model points to a future cash flow value of $113.73 per share, compared with the current $34.04 price. That suggests Radian Group may be trading at a steep discount relative to that estimate. Does that reflect potential mispricing, or simply very cautious expectations embedded in the stock price?

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 33 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

There are mixed signals on Radian Group so far. If you want your view to be grounded in the full picture, consider both the potential risks and opportunities and review the 5 key rewards and 1 important warning sign.

Looking for more Radian Group style investment ideas?

If you stop with just Radian Group, you might miss other opportunities that fit your approach, so take a few minutes to scout fresh candidates.

• Target potential value opportunities by scanning the 33 high quality undervalued stocks that meet your quality and pricing standards.
• Build a more resilient portfolio by reviewing 32 resilient stocks with low risk scores that emphasise steadier balance sheets and business profiles.
• Spot lesser known prospects early by checking out 20 high quality undiscovered gems before they land on every investor's radar.

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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