Markets
MTG

Is MGIC Investment a Suitable Stock for Value Investors?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn't want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let's put MGIC Investment CorporationMTG stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock's current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, MGIC Investment has a trailing twelve months PE ratio of 11.43, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.77. If we focus on the long-term PE trend, MGIC Investment's current PE level puts it above its midpoint over the past two years, with the number having risen rapidly over the past few months.

Further, the stock's PE also compares favorably with the Zacks Categorized Insurance-Multiline industry's trailing twelve months PE ratio, which stands at 21.25. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that MGIC Investment has a forward PE ratio (price relative to this year's earnings) of just 11.20, so it is fair to say that a slightly more value-oriented path may be ahead for MGIC Investment stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock's price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, MGIC Investment has a P/S ratio of about 4.24. This is significantly higher than the S&P 500 average, which comes in at 3.03 right now. Also, as we can see in the chart below, this is close to the highs for this stock in particular over the past few years, suggesting that the stock is overvalued from a P/S perspective.

Broad Value Outlook

In aggregate, MGIC Investment currently has a Zacks Value Style Score of 'B', putting it into the top 40% of all stocks we cover from this look. This makes MGICInvestment a solid choice for value investors.

What About the Stock Overall?

Though MGIC Investment might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of 'C' and a Momentum score of 'A'. This gives MTG a Zacks VGM score-or its overarching fundamental grade-of 'B'. (You can read more about the Zacks Style Scores here >> )

Meanwhile, the company's recent earnings estimates have been favorable. Both the current quarter and the current year have seen two estimates going higher in the past sixty days compared to none lower.

This has had just a small impact on the consensus estimate as the current quarter consensus estimate has risen by 4.3% in the past two months, while the full year estimate has also risen by 4%. You can see the consensus estimate trend and recent price actionfor the stock in the chart below:

MGIC Investment Corporation Price and Consensus

MGIC Investment Corporation Price and Consensus | MGIC Investment Corporation Quote

Meanwhile, the company's recent estimate revision trend has been favorable. The next year has seen one estimate going higher in the past thirty days compared to none lower. This however had an adverse impact on the consensus estimate as the next year estimate has decreased by 1.8% in the past one month.

This mixed trend indicates that while the stock's growth story is intact over the medium term, analysts have some apprehensions about the stock in the immediate future. That is why the stock has a just a Zacks Rank #3 (Hold) and we are looking for in-line performance from the company in the near term.

Bottom Line

MGIC Investment is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, in spite of having a top industry rank (top 27%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past three years, the Zacks Categorized Insurance-Multiline industry industry has clearly underperformed the broader market, as you can see below:

So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

Zacks' Best Private Investment Ideas

In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?

Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

MGIC Investment Corporation (MTG): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

MTG

Other Topics

Investing Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More