A strong performer from today's morning trading session is Arch Capital, whose shares rose 2.0% to $73.13 per share. For those of you thinking about investing in the stock, here is a brief value analysis of the stock using the company's basic fundamental ratios.
Arch Capital Group Ltd., together with its subsidiaries, provides insurance, reinsurance, and mortgage insurance products worldwide. The company belongs to the Finance sector, which has an average price to earnings (P/E) ratio of 14.34 and an average price to book (P/B) ratio of 1.57. In contrast, Arch Capital has a trailing 12 month P/E ratio of 19.3 and a P/B ratio of 2.2.
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 divideArch Capital's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.72, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
