American Financial shares fell by -3.3% during the day's afternoon session, and are now trading at a price of $137.85. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
American Financial Group, Inc., an insurance holding company, provides specialty property and 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, American Financial has a trailing 12 month P/E ratio of 12.0 and a P/B ratio of 3.0.
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.
American Financial's PEG ratio is 4.71, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.