The search for value in today’s market often requires looking beyond the most obvious names. Value investing, a strategy rooted in the work of Benjamin Graham, centers on finding companies whose stock price is lower than their intrinsic worth, providing a potential margin of safety. One effective way to uncover such opportunities is through a "Decent Value" screen, which prioritizes strong valuation scores but still requires companies to demonstrate acceptable levels of profitability, financial health, and growth. This screening method helps investors avoid the worst of the value traps—stocks that are cheap for a reason—by ensuring that the low valuation is backed by solid operational fundamentals. A company that has surfaced from such a screen is NMI HOLDINGS INC (NASDAQ:NMIH), a provider of private mortgage guaranty insurance.
Strong Valuation Metrics Make the Case
The most persuasive argument for NMIH as a value candidate lies in its valuation. The company earns a ChartMill Valuation Rating of 8 out of 10, a score that immediately flags it for further investigation. The numbers paint a clear picture of a stock trading at a discount.
Looking at the core metrics, NMIH trades at a trailing Price/Earnings (P/E) ratio of just 8.66. This is significantly lower than the industry average P/E of 24.11 and even further below the S&P 500’s average of 26.78. For value investors, this kind of disparity is the starting point of the thesis. The forward P/E is even more attractive at 7.75, indicating that the market is not pricing in much future growth, which creates an opportunity if the company can deliver.
The discounts extend beyond the P/E ratio. The Enterprise Value to EBITDA (EV/EBITDA) multiple suggests NMIH is cheaper than nearly 88% of its industry peers. Similarly, its Price to Free Cash Flow ratio is lower than 82% of competitors. In a strategy that explicitly looks for value, these metrics confirm that NMIH is not just cheap relative to a single metric but is undervalued across multiple standard measures.
Profitability That Supports the Valuation
A low valuation is only attractive if the underlying business is profitable. The Decent Value screen filters specifically for this balance, and NMIH scores a solid 7 out of 10 on the ChartMill Profitability Rating.
The company’s financial performance is strong. Its Return on Invested Capital (ROIC) stands at 10.67%, outperforming 84% of its industry peers. This is a critical metric for value investors because it measures how efficiently the company generates profits from its capital. Furthermore, its Return on Assets (ROA) of 9.87% bests 90% of the competition.
The margin profile is where NMIH truly stands out. A Profit Margin of 53.82% is exceptional, outperforming 93% of peers. The Operating Margin of 72.82% is even more impressive, ranking in the top 5% of the industry. Although the overall fundamental rating sits at a balanced 5 out of 10, a deeper look into the full fundamental analysis report reveals that this middle score is mostly dragged down by the lack of a dividend, not by operational weakness. For value investors who prioritize reinvestment over yield, this metric is less of a concern.
Solid Financial Health Avoids the Trap
A company can have great margins and a low price but still be a poor investment if it is drowning in debt. NMIH’s financial health rating of 5 out of 10 is average, but a closer inspection of the underlying data shows some strong positives.
- Low Leverage: NMIH has a Debt to Equity ratio of just 0.16, which is a healthy figure that outperforms 75% of its peers.
- Excellent Solvency: The Debt to Free Cash Flow ratio is 0.98. This means the company could theoretically pay off all its debt in under one year using its free cash flow, placing it among the best in the industry for solvency.
- Shareholder Friendly: The company has been reducing its share count over both the past one and five years, demonstrating a commitment to building per-share value.
While the health rating is not the highest possible, the mix of low debt and high solvency provides a solid foundation. This reduces the risk of a value trap, where a cheap stock becomes cheaper due to financial distress.
Growth Context: Past Strength, Realistic Expectations
The final pillar of the Decent Value screen is growth. NMIH scores a 4 out of 10 here, which is reasonable for a value stock. The historical data is encouraging: Earnings Per Share (EPS) has grown at an annualized rate of 17.31% over the last several years, with revenue growing at 10.27% annually.
The forward projections are more moderate, with EPS expected to grow around 4.84% and revenue near 3.90% annually. This deceleration is noted in the ratings as a negative, but it is crucial to put it in context. The market is already pricing the stock very cheaply (P/E of 8.66) based on these modest growth expectations. If NMIH can even match its historical performance or simply hit the current analyst projections, the current valuation provides a significant buffer. For a value investor, buying a high-quality business with proven past growth at a discounted price, even if growth is expected to slow, is often the core of the opportunity.
Finding More Opportunities
NMIH serves as a solid example of the type of stock a value-oriented screen can uncover: a company that is undeniably cheap on multiple metrics, but where that cheapness is backed by high profitability and manageable debt. It is not a broken business; it is a profitable one trading at a discount, possibly due to a lack of dividends or modest growth expectations.
For investors looking to build a broader watchlist, the same screening criteria can be applied across the market. You can find more stocks exhibiting a similar mix of strong valuation and decent fundamentals by running a custom decent value stock screen.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. All investment decisions should be made based on your own research and risk tolerance.
Read full article here »
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NMI Holdings Inc (NASDAQ:NMIH): A Value Stock With Strong Fundamentals and a Low P/E Ratio
The search for value in today’s market often requires looking beyond the most obvious names. Value investing, a strategy rooted in the work of Benjamin Graham, centers on finding companies whose stock price is lower than their intrinsic worth, providing a potential margin of safety. One effective way to uncover such opportunities is through a "Decent Value" screen, which prioritizes strong valuation scores but still requires companies to demonstrate acceptable levels of profitability, financial health, and growth. This screening method helps investors avoid the worst of the value traps—stocks that are cheap for a reason—by ensuring that the low valuation is backed by solid operational fundamentals. A company that has surfaced from such a screen is NMI HOLDINGS INC (NASDAQ:NMIH), a provider of private mortgage guaranty insurance.
Strong Valuation Metrics Make the Case
The most persuasive argument for NMIH as a value candidate lies in its valuation. The company earns a ChartMill Valuation Rating of 8 out of 10, a score that immediately flags it for further investigation. The numbers paint a clear picture of a stock trading at a discount.
Looking at the core metrics, NMIH trades at a trailing Price/Earnings (P/E) ratio of just 8.66. This is significantly lower than the industry average P/E of 24.11 and even further below the S&P 500’s average of 26.78. For value investors, this kind of disparity is the starting point of the thesis. The forward P/E is even more attractive at 7.75, indicating that the market is not pricing in much future growth, which creates an opportunity if the company can deliver.
The discounts extend beyond the P/E ratio. The Enterprise Value to EBITDA (EV/EBITDA) multiple suggests NMIH is cheaper than nearly 88% of its industry peers. Similarly, its Price to Free Cash Flow ratio is lower than 82% of competitors. In a strategy that explicitly looks for value, these metrics confirm that NMIH is not just cheap relative to a single metric but is undervalued across multiple standard measures.
Profitability That Supports the Valuation
A low valuation is only attractive if the underlying business is profitable. The Decent Value screen filters specifically for this balance, and NMIH scores a solid 7 out of 10 on the ChartMill Profitability Rating.
The company’s financial performance is strong. Its Return on Invested Capital (ROIC) stands at 10.67%, outperforming 84% of its industry peers. This is a critical metric for value investors because it measures how efficiently the company generates profits from its capital. Furthermore, its Return on Assets (ROA) of 9.87% bests 90% of the competition.
The margin profile is where NMIH truly stands out. A Profit Margin of 53.82% is exceptional, outperforming 93% of peers. The Operating Margin of 72.82% is even more impressive, ranking in the top 5% of the industry. Although the overall fundamental rating sits at a balanced 5 out of 10, a deeper look into the full fundamental analysis report reveals that this middle score is mostly dragged down by the lack of a dividend, not by operational weakness. For value investors who prioritize reinvestment over yield, this metric is less of a concern.
Solid Financial Health Avoids the Trap
A company can have great margins and a low price but still be a poor investment if it is drowning in debt. NMIH’s financial health rating of 5 out of 10 is average, but a closer inspection of the underlying data shows some strong positives.
While the health rating is not the highest possible, the mix of low debt and high solvency provides a solid foundation. This reduces the risk of a value trap, where a cheap stock becomes cheaper due to financial distress.
Growth Context: Past Strength, Realistic Expectations
The final pillar of the Decent Value screen is growth. NMIH scores a 4 out of 10 here, which is reasonable for a value stock. The historical data is encouraging: Earnings Per Share (EPS) has grown at an annualized rate of 17.31% over the last several years, with revenue growing at 10.27% annually.
The forward projections are more moderate, with EPS expected to grow around 4.84% and revenue near 3.90% annually. This deceleration is noted in the ratings as a negative, but it is crucial to put it in context. The market is already pricing the stock very cheaply (P/E of 8.66) based on these modest growth expectations. If NMIH can even match its historical performance or simply hit the current analyst projections, the current valuation provides a significant buffer. For a value investor, buying a high-quality business with proven past growth at a discounted price, even if growth is expected to slow, is often the core of the opportunity.
Finding More Opportunities
NMIH serves as a solid example of the type of stock a value-oriented screen can uncover: a company that is undeniably cheap on multiple metrics, but where that cheapness is backed by high profitability and manageable debt. It is not a broken business; it is a profitable one trading at a discount, possibly due to a lack of dividends or modest growth expectations.
For investors looking to build a broader watchlist, the same screening criteria can be applied across the market. You can find more stocks exhibiting a similar mix of strong valuation and decent fundamentals by running a custom decent value stock screen.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. All investment decisions should be made based on your own research and risk tolerance.
Read full article here »