- Wondering whether Arch Capital Group at around US$93 per share still offers value, or if most of the opportunity is already reflected in the price? This article focuses squarely on what the current valuation signals might be telling you.
- The stock has gained 1.2% over the last 7 days, while showing a 6.0% decline over 30 days and a slight 0.5% decline year to date, alongside a 1.7% decline over the last year and longer term returns of 44.8% over 3 years and 149.3% over 5 years.
- Recent coverage has highlighted Arch Capital Group in the context of its long term share price performance and position within the Insurance industry. This helps frame how investors may be reassessing both risk and potential. This mix of short term softness and stronger multi year returns is an important backdrop for thinking about what is already priced in.
- On Simply Wall St's valuation model the company scores 5 out of 6 for undervaluation checks, giving it a value score of 5. The next sections will walk through the main valuation methods used, then finish by introducing a more holistic way to think about what that valuation really means for you.
Approach 1: Arch Capital Group Excess Returns Analysis
The Excess Returns model looks at how much value Arch Capital Group can create above the return that shareholders typically require. It starts with the book value of the business, then adds the present value of future “excess” profits, which are earnings above the cost of equity.
For Arch Capital Group, book value is estimated at $65.37 per share, with a stable book value of $80.13 per share based on future estimates from 9 analysts. Stable EPS is put at $11.10 per share, sourced from weighted future Return on Equity estimates from 8 analysts. The average Return on Equity used in the model is 13.85%.
The cost of equity is calculated at $5.59 per share, while the excess return is $5.51 per share. In simple terms, the model assumes Arch Capital Group can earn more on its equity base than the required return, and that this gap can persist over time.
Putting these inputs together, the Excess Returns model arrives at an intrinsic value of about $234.45 per share. This implies the shares trade at a 60.2% discount to this estimate, so the stock screens as undervalued on this approach.
Result: UNDERVALUED
Our Excess Returns analysis suggests Arch Capital Group is undervalued by 60.2%. Track this in your watchlist or portfolio, or discover 60 more high quality undervalued stocks.
Approach 2: Arch Capital Group Price vs Earnings
P/E is a common way to look at value for profitable companies because it ties the share price directly to the earnings that belong to you as a shareholder. In general, higher growth expectations and lower perceived risk can support a higher “normal” P/E. In contrast, slower growth or higher risk tends to justify a lower one.
Arch Capital Group currently trades on a P/E of 7.61x. That sits below both the insurance industry average of 10.86x and the peer average of 11.04x, so on simple comparisons the shares look inexpensive relative to many insurers and direct peers.
Simply Wall St’s Fair Ratio for Arch Capital Group is 10.71x. This is a proprietary estimate of what the P/E might be, given factors such as earnings growth, profit margins, industry, market cap and risk profile. Because it adjusts for these company-specific drivers, the Fair Ratio can give you a more tailored view than broad industry or peer averages alone.
Comparing the Fair Ratio of 10.71x with the current P/E of 7.61x suggests the shares trade below this modelled “fair” level, which indicates that the stock screens as undervalued on this approach.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Arch Capital Group Narrative
Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St’s Community page let you connect your view of Arch Capital Group’s story to explicit forecasts for revenue, earnings and margins. These then roll up into a fair value that you can compare with the current share price to decide whether the stock looks expensive or cheap. Because Narratives update automatically when new information like earnings or news arrives, you can see in real time how different viewpoints play out. For example, one investor might align with the more bullish analyst narrative that supports a fair value around US$125 based on expectations for earnings of US$4.0b and a future P/E of 12.0x, while a more cautious investor might anchor closer to the lower US$93 fair value. The platform simply shows you how each story translates into numbers so you can choose which one best fits your own expectations.
Do you think there's more to the story for Arch Capital Group? Head over to our Community to see what others are saying!
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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