- If you are wondering whether Arch Capital Group is attractively priced or already fully valued, you are not alone. This article is designed to help you make sense of where the current share price sits.
- The stock last closed at US$94.22, with returns of 0.4% year to date and 4.2% over the past year. The 3 year and 5 year returns sit at 50.0% and 163.3%, even after recent 7 day and 30 day declines of 2.9% and 3.7%.
- Recent coverage has focused on Arch Capital Group's position in the insurance sector and how investors are weighing its long term track record against day to day price swings. This backdrop is important context for the recent pullback, as it helps frame whether the current price is being driven more by sentiment or by changes in the business outlook.
- On our valuation checks, Arch Capital Group scores a 5 out of 6. We will break this down using several common valuation approaches, and then finish with a way of thinking about value that can give you an even clearer picture than any single model on its own.
Approach 1: Arch Capital Group Excess Returns Analysis
The Excess Returns model looks at how much profit a company is expected to earn over and above the return that shareholders require, then converts that stream of excess profits into an intrinsic value per share.
For Arch Capital Group, the model uses a Book Value of $65.37 per share and a Stable EPS of $11.10 per share, based on weighted future Return on Equity estimates from 8 analysts. The Average Return on Equity is 13.85%, while the Cost of Equity is $5.59 per share, which leads to an estimated Excess Return of $5.50 per share.
The analysis also uses a Stable Book Value of $80.13 per share, sourced from weighted future Book Value estimates from 9 analysts. Putting these inputs together, the Excess Returns model produces an intrinsic value estimate of about $234.39 per share.
Compared with the recent share price of $94.22, this implies a 59.8% discount, which suggests that Arch Capital Group stock appears undervalued according to this particular approach.
Result: UNDERVALUED
Our Excess Returns analysis suggests Arch Capital Group is undervalued by 59.8%. Track this in your watchlist or portfolio, or discover 50 more high quality undervalued stocks.
Approach 2: Arch Capital Group Price vs Earnings
For a consistently profitable company like Arch Capital Group, the P/E ratio is a useful way to link what you pay today to the earnings the business is generating. In simple terms, higher growth expectations and lower perceived risk usually justify a higher P/E, while slower growth and higher risk tend to align with a lower, more cautious multiple.
Arch Capital Group currently trades on a P/E of 7.66x. That sits below the Insurance industry average P/E of 11.43x and also below the peer group average of 11.58x. Simply Wall St’s Fair Ratio for Arch Capital Group is 10.71x. This is a proprietary estimate of what a reasonable P/E could be for the company, based on factors such as its earnings profile, industry, profit margins, market cap and specific risks.
Compared with a simple peer or industry comparison, the Fair Ratio aims to be more tailored to Arch Capital Group’s own characteristics rather than assuming it should trade exactly in line with the broader group. With the current P/E of 7.66x sitting below the Fair Ratio of 10.71x, the shares appear inexpensive on this metric.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Arch Capital Group Narrative
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. Narratives let you turn your view of Arch Capital Group into a simple story that connects your assumptions about future revenue, earnings, margins and a fair value to the current price. All of this is available within an easy tool on Simply Wall St’s Community page that updates as new news or earnings arrive and helps you compare your Fair Value to the market. This is the case whether you lean closer to a more cautious view around US$93.00 per share or a more optimistic one closer to US$125.00, with the consensus Narrative sitting near US$108.31 and Simply Wall St’s latest fair value estimate around US$106.89.
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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