Analyzing RYAN Stock – Is the Valuation Justified?

One of Wall Street's biggest winners of the day is Ryan Specialty, a specialty insurance company whose shares have climbed 7.2% to a price of $50.66 -- near its average analyst target price of $51.11.

The average analyst rating for the stock is buy. RYAN may have outstripped the S&P 500 index by 7.0% so far today, but it has lagged behind the index by 14.4% over the last year, returning 14.2%.

Ryan Specialty Holdings, Inc. operates as a service provider of specialty products and solutions for insurance brokers, agents, and carriers. The company is included in the financial services sector, which includes a wide variety of industries such as credit services, mortgage, banking, and insurance. Owing to this variety and the fast pace of innovation within these industries, investors may struggle to make sense of this sector.

As evidenced by the financial meltdown of 2008, seemingly healthy financial services companies — from insurers to investment banks — may see their market value plunge to zero in a matter of months. While the financial crash was likely a once-in-a-generation event, it highlights the volatility that is inherent to the sector. Financial innovation creates opportunities, but also new types of risk that investors and even the companies themselves may not fully understand.

Ryan Specialty's trailing 12 month P/E ratio is 110.1, based on its trailing EPS of $0.46. The company has a forward P/E ratio of 29.6 according to its forward EPS of $1.71 -- which is an estimate of what its earnings will look like in the next quarter.

As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US finance companies is 12.38, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

We can take the price to earnings analysis one step further by dividing the P/E ratio by the company’s projected five-year growth rate, which gives us its Price to Earnings Growth, or PEG ratio. This ratio is important because it allows us to identify companies that have a low price to earnings ratio because of low growth expectations, or conversely, companies with high P/E ratios because growth is expected to take off.

Ryan Specialty's PEG ratio of 1.75 indicates that its P/E ratio is fair compared to its projected earnings growth. In other words, the company’s valuation accurately reflects its estimated growth potential. The caveat, however, is that these growth estimates could turn out to be inaccurate.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.

Ryan Specialty's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 10, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.58 as of the first quarter of 2023.

Ryan Specialty is by most measures overvalued because it has a higher P/E ratio than its sector average, a higher than Average P/B Ratio, and No published cashflows with an unknown trend. The stock has poor growth indicators because it has a no PEG ratio and weak operating margins with a positive growth rate. We hope you enjoyed this overview of RYAN's fundamentals.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.