- Wondering if American Financial Group at around US$126.85 is offering good value right now, or if most of the opportunity is already priced in.
- The stock has been relatively steady over the past week with a 0.1% return decline. The 30 day and year to date returns of 2.1% decline and 5.9% decline sit against a 1 year gain of 4.4% and a 3 year and 5 year return of 26.4% and 87.1% respectively.
- Recent coverage has focused on American Financial Group as an established insurance name. This often attracts attention from income focused and quality focused investors when prices move away from longer term trends. Broader market commentary has also kept an eye on insurance stocks as investors reassess risk and return trade offs across financials.
- Right now, American Financial Group holds a valuation score of 4 out of 6. This sets up a closer look at how traditional methods like P/E multiples and cash flow models stack up, and hints at an even more complete way to think about value that will be covered at the end of this article.
Approach 1: American Financial Group Excess Returns Analysis
The Excess Returns model looks at how much profit a company can generate over and above the return that shareholders require, then converts those surplus profits into an estimated per share value.
For American Financial Group, the starting point is a Book Value of $57.78 per share and a Stable Book Value estimate of $66.53 per share, based on weighted future book value estimates from 5 analysts. On these estimates, Stable EPS is $12.53 per share, sourced from weighted future return on equity forecasts from the same analyst group.
The model applies a Cost of Equity of $4.64 per share and an Excess Return of $7.88 per share, implying that projected earnings per share are comfortably above the required shareholder return. The average Return on Equity used in the model is 18.83%, which feeds into the Stable EPS and book value projections.
Putting these inputs together, the Excess Returns approach estimates an intrinsic value of about $287.51 per share. This compares with a recent share price of around $126.85, so the stock screens as significantly undervalued on this framework, with a calculated discount of 55.9%.
Result: UNDERVALUED
Our Excess Returns analysis suggests American Financial Group is undervalued by 55.9%. Track this in your watchlist or portfolio, or discover 55 more high quality undervalued stocks.
Approach 2: American Financial Group Price vs Earnings
For a profitable company like American Financial Group, the P/E ratio is a useful shorthand because it links what you pay today directly to current earnings. Investors usually accept a higher P/E when they expect stronger earnings growth or see lower risk, and a lower P/E when growth expectations or risk profiles are more modest.
American Financial Group currently trades on a P/E of 12.55x. This sits above the Insurance industry average P/E of 10.92x, but slightly below the peer group average of 13.13x. Simply Wall St’s Fair Ratio for the stock is 13.52x, which represents the P/E level that might be expected after considering factors such as earnings growth, industry, profit margins, market cap and company specific risks.
This Fair Ratio is more tailored than a simple comparison with peers or the broader industry, because it adjusts for company specific drivers rather than assuming all insurers deserve similar multiples. Setting the current P/E of 12.55x against the Fair Ratio of 13.52x suggests the shares are trading at a discount on this framework.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your American Financial Group Narrative
Earlier we mentioned that there is an even better way to think about valuation. Narratives on Simply Wall St let you attach a clear story about American Financial Group to the numbers by linking your view of its future revenue, earnings and margins to a forecast and a Fair Value, then comparing that Fair Value to the current price. The tool updates automatically as fresh news or earnings arrive. One investor might build a Narrative that lines up closer to the higher US$155 target, while another leans toward the lower US$124 view, and both can quickly see whether their assumed Fair Value suggests the stock is above or below the current market price.
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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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