White Mountains Insurance Group (WTM) has drawn investor attention after recent share price moves, with the stock’s one-month and past three-month returns outpacing its one-day and seven-day performance.
See our latest analysis for White Mountains Insurance Group.
Those short term moves sit within a stronger backdrop, with the 30 day share price return of 8.31% and year to date share price return of 8.87% aligning with a 1 year total shareholder return of 20.79%. This suggests momentum has been building rather than fading.
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With a recent share price of US$2,222.97 and a 1 year total return of 20.79% on top of multi year gains, the key question now is whether White Mountains Insurance Group is still mispriced or if the market is already factoring in future growth.
Preferred P/E of 4.9x: Is it justified?
On a P/E of 4.9x at a share price of $2,222.97, White Mountains Insurance Group screens as inexpensive compared to both the wider US market and US insurance peers.
The P/E ratio compares what investors are paying per share with the company’s earnings per share. For an insurer with meaningful earnings and a long operating history, it is a common way for investors to benchmark how the market is pricing those earnings against alternatives.
Here, White Mountains Insurance Group stands out. The current P/E of 4.9x sits well below the US market average P/E of 19.4x and also under the US insurance industry average of 12.5x. At the same time, reported earnings growth over the past year was 386.5%, ahead of both the company’s own 5 year earnings growth of 9.5% per year and the insurance industry’s 17.2% result. Some of that earnings strength is linked to a large one off gain of $676.3m, so headline profit figures are not purely from recurring activity.
Compared to direct peers, that gap in multiples is clear. A P/E of 4.9x versus a 10.9x peer average and a 12.5x industry average points to the market applying a discount to White Mountains Insurance Group’s earnings despite recent profit growth and higher current net margins of 38.3% versus 9.7% last year.
See what the numbers say about this price — find out in our valuation breakdown.
Result: Price-to-Earnings of 4.9x (UNDERVALUED)
However, the picture is not one sided. Reliance on a large one off gain and exposure to insurance and reinsurance cycles are both potential pressure points.
Find out about the key risks to this White Mountains Insurance Group narrative.
Another view from our DCF model
While the current 4.9x P/E makes White Mountains Insurance Group look inexpensive, our DCF model paints a different picture. At a share price of $2,222.97 and an estimated future cash flow value of $1,187.52, the shares screen as overvalued using this approach. This raises the question: which signal would you trust more?
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 White Mountains Insurance 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 54 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
Given the mixed signals, are you leaning bullish or cautious right now? Take a close look at the full picture, including 2 key rewards and 2 important warning signs, and decide where you stand.
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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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