Standing out among the Street's worst performers today is Prudential, a life insurance company whose shares slumped -3.8% to a price of $15.13, 46.67% below its average analyst target price of $28.38. PUK lagged the S&P 500 index by -4.0% so far today and by -50.8% over the last year, returning -27.3%.
Prudential plc, through its subsidiaries, provides life and health insurance, and asset management solutions to individuals in Asia and Africa. 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.
Prudential's trailing 12 month P/E ratio is 23.6, based on its trailing EPS of $0.64. The company has a forward P/E ratio of 7.7 according to its forward EPS of $1.5 -- which is an estimate of what its earnings will look like in the next quarter. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US finance companies is 20.04, and the S&P 500 has an average of 29.3. 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.
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). Prudential's P/B ratio is 2.56 -- in other words, the market value of the company exceeds its book value by a factor of more than 2, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.86 as of the third quarter of 2024.
Since it has an average P/E ratio, an average P/B ratio, and No published cashflows with an unknown trend, Prudential is likely overvalued at today's prices. The company has poor growth indicators because of a negative PEG ratio and strong operating margins with a positive growth rate. We hope you enjoyed this overview of PUK's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
