iA Financial (TSX:IAG) Stock Still Looks Undervalued At Today’s Price

iA Financial has delivered very strong share gains over the past few years, which naturally raises a sharper question for investors about whether the current price is fully backed by the returns the business earns on its capital. With fresh headlines on dividends, buybacks and capital deployment, the focus now turns to what those choices say about the quality of that underlying return engine.

• Over the past 5 years the stock has returned about 234.6%, so anyone looking at iA Financial today is really asking how durable its capital returns have to be to justify that kind of long run outcome.
• The recent 7% bump in the common dividend alongside renewed share repurchases signals that management is confident enough in recurring cash generation to return more capital to shareholders, which directly feeds into how investors think about the value created on each dollar kept inside the business.
• What if you looked at iA Financial through its earnings instead? See why iA Financial's 19.7x P/E tells a different valuation story.

The stock's next move may depend on whether the returns iA Financial earns on its capital are strong enough, and reliable enough, to make the current share price look fully supported.

If you are weighing whether iA Financial's recent dividend, buyback activity and 5 year return of 234.6% are fairly reflected in the price, you can pressure test that same question across 5 high quality undervalued stocks

Is iA Financial Still Cheap on Excess Returns?

The Excess Returns model looks at how much profit iA Financial can generate above the return investors typically require on its equity. In this view, the key inputs are the book value of CA$81.67 per share and a stable EPS estimate of CA$16.73 per share, both supported by analyst expectations for the balance sheet and earnings power. An average return on equity of 18.62% against a cost of equity of CA$5.79 per share feeds into an excess return of CA$10.95 per share, which is a sizable gap between what the business is modeled to earn and the minimum investors are assumed to demand.

Those excess returns are projected on a stable book value of CA$89.86 per share and then compared with the CA$216.76 share price to judge whether the market is fully charging for that profitability. The recent 7% dividend increase and renewed share buyback program sit neatly beside this, because management is actively shrinking equity while the model assumes returns above the cost of capital. This can amplify value creation if those assumptions hold. The Excess Returns output currently points to an estimated intrinsic value substantially above the current share price, which you can explore in more detail across. Find out what iA Financial could be worth using our Excess Returns estimate.

The iA Financial Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where the excess returns puzzle leaves off by spelling out which paths for iA Financial's growth, margins and earnings would need to play out for the stock to end up worth materially more or less than today's price. Each scenario ties a fair value estimate to a clear story about potential catalysts and key risks, so you can track over time which version seems most aligned with how the business is actually evolving on the Community page.

One of the top narratives on iA Financial: roughly fairly valued

This Narrative is the analyst consensus Narrative on Simply Wall St, which compiles analysts' consensus price target and revenue and earnings forecasts, not one person's view.

"Industry focus on capital strength and disciplined risk management is consistent with iA Financial's solvency ratio of 137% and organic capital generation, which can support future growth investments…"

Discover why this Narrative puts iA Financial at roughly fairly valued.

One more iA Financial check that belongs beside the price tag

Before you lean too heavily on any model or chart, it helps to know who is steering iA Financial and how their pay lines up with your interests. See who runs iA Financial and how they are paid.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com