It's been a great afternoon session for Cincinnati Financial investors, who saw their shares rise 5.6% to a price of $111.36 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
Cincinnati Financial Corporation, together with its subsidiaries, provides property casualty insurance products in the United States. The company belongs to the Financial Services sector, which has an average price to earnings (P/E) ratio of 13.34 and an average price to book (P/B) ratio of 1.95. In contrast, Cincinnati Financial has a trailing 12 month P/E ratio of 34.7 and a P/B ratio of 1.9.
P/B ratios are calculated by dividing the company's market value by its equity's book value. Equity refers to all of the company's assets minus its liabilities. Traditionally, a P/B ratio of around 1 shows that a company is fairly valued, but owing to consistently higher valuations in the modern era, investors generally compare against sector averages.
When we divide Cincinnati Financial's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -18.91. Since it's negative, the company actually has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.