Value investing remains one of the most time-tested approaches in the financial markets. The core idea is straightforward: buy stocks trading below their intrinsic worth and hold them until the market recognises that value. However, finding such opportunities requires more than just a low price-to-earnings ratio – it demands a business that is financially healthy, consistently profitable, and capable of growing earnings over time. The Decent Value screen is designed to identify exactly that combination: stocks with strong valuation scores that also maintain decent profitability, health, and growth. This approach helps avoid the classic value trap, where a cheap stock is cheap for a reason.
One stock that emerges from this screen is Radian Group Inc. (NYSE:RDN), a holding company that provides mortgage insurance, risk management products, and real estate services to financial institutions. With a fundamental rating of 6 out of 10 and a valuation score of 8, Radian presents an interesting case for value-focused investors. Let’s break down the key factors.
Valuation – The Core of the Decent Value Thesis
The valuation metrics for Radian stand out immediately. The trailing price-to-earnings ratio is 8.52, well below the industry average of 23.04 and far cheaper than the S&P 500’s 26.18. The forward P/E of 7.08 reinforces that the market is not pricing in much growth optimism. More revealing is the enterprise value to EBITDA ratio, where Radian ranks cheaper than nearly 87% of its industry peers. The price-to-free-cash-flow ratio also points to an undervalued stock, ranking below 63% of competitors. Additionally, the PEG ratio (which adjusts P/E for earnings growth) indicates that the current price does not fully reflect the company’s growth potential. These figures together give the stock a valuation rating of 8 out of 10, placing it firmly in the “cheap” category.
Profitability – Margins Tell a Strong Story
A low valuation is only attractive if the underlying business is solidly profitable. Radian’s profitability rating of 6 out of 10 hides some standout numbers. The company has a profit margin of 40.28%, which puts it in the top 12% of its industry. The operating margin of 62.17% is even more impressive – better than 92% of peers. Both margins have improved in recent years. Return on equity (11.69%) and return on assets (5.28%) are both above average, though the return on invested capital (6.72%) is more moderate. These figures confirm that Radian is not just cheap; it is also efficiently generating profits from its operations.
Health – Solid but with One Flag
Financial health is where the picture becomes slightly more nuanced. Radian’s health rating is 6 out of 10, which is decent but not stellar. The debt-to-equity ratio is very low at 0.16, indicating minimal reliance on leverage. The debt-to-free-cash-flow ratio of 3.81 suggests the company could pay off all debt in under four years using free cash flow – a healthy sign. The current and quick ratios are both 1.19, above industry medians, so liquidity is adequate.
The one major caveat is the Altman Z-score of 1.62, which falls into the “distress zone” and suggests some theoretical bankruptcy risk. However, it is important to put this in context: within the financial services industry, a Z-score below 1.8 is not uncommon for mortgage insurers because of their business model. Radian actually outperforms 73% of its industry peers on this metric. The company also has a history of reducing shares outstanding, which is a positive signal for shareholders.
Growth – Past Strength, Accelerating Revenue Ahead
Radian’s growth rating of 6 out of 10 reflects a mixed but promising picture. Past earnings per share growth has been strong: 10.73% over the last year and 19.89% annualised over the longer term. Revenue grew 8.29% in the most recent year, although the multi-year average shows a slight decline of -3.59% due to cyclical factors. Looking forward, analysts expect earnings per share to grow at 9.23% annually and revenue to accelerate sharply at 33.12% per year. While the EPS growth rate is decelerating from its recent high, the revenue acceleration suggests the company is expanding its top line meaningfully.
Dividend – A Reliable Income Component
Value investors often appreciate a dividend, and Radian delivers. The forward dividend yield of 2.67% exceeds both the industry average (1.84%) and the S&P 500 average (1.74%). The company has paid and increased its dividend for at least 10 consecutive years, with a compound annual growth rate of 15.69%. The payout ratio of 25.55% is low and sustainable, though dividend growth is currently outpacing earnings growth, which could become a headwind over time. Overall, the dividend rating is 7 out of 10.
Putting It All Together
The Decent Value screen seeks stocks where valuation is the primary attraction but does not sacrifice profitability, health, or growth. Radian Group fits that profile: its valuation scores are among the strongest in its industry, margins are excellent, the balance sheet is conservatively leveraged, and future revenue growth is expected to accelerate. The Altman Z-score warrants monitoring, but within the context of its peer group, it is not an outlier.
For a deeper look into the numbers, you can view the full fundamental analysis report on ChartMill, which breaks down each component in detail.
If Radian’s profile aligns with your investment style, you may want to explore other candidates that meet the same criteria. You can run the Decent Value Stock Screen yourself to uncover additional stocks with strong valuation, decent profitability, healthy finances, and moderate growth.
This article is for informational purposes only and does not constitute investment advice. Always conduct your own research before making any trading or investing decisions.
Read full article here »
View the Zacks #1 Rank List
Radian Group (NYSE:RDN): A Deeply Undervalued Value Stock with Strong Profitability and Growth
Value investing remains one of the most time-tested approaches in the financial markets. The core idea is straightforward: buy stocks trading below their intrinsic worth and hold them until the market recognises that value. However, finding such opportunities requires more than just a low price-to-earnings ratio – it demands a business that is financially healthy, consistently profitable, and capable of growing earnings over time. The Decent Value screen is designed to identify exactly that combination: stocks with strong valuation scores that also maintain decent profitability, health, and growth. This approach helps avoid the classic value trap, where a cheap stock is cheap for a reason.
One stock that emerges from this screen is Radian Group Inc. (NYSE:RDN), a holding company that provides mortgage insurance, risk management products, and real estate services to financial institutions. With a fundamental rating of 6 out of 10 and a valuation score of 8, Radian presents an interesting case for value-focused investors. Let’s break down the key factors.
Valuation – The Core of the Decent Value Thesis
The valuation metrics for Radian stand out immediately. The trailing price-to-earnings ratio is 8.52, well below the industry average of 23.04 and far cheaper than the S&P 500’s 26.18. The forward P/E of 7.08 reinforces that the market is not pricing in much growth optimism. More revealing is the enterprise value to EBITDA ratio, where Radian ranks cheaper than nearly 87% of its industry peers. The price-to-free-cash-flow ratio also points to an undervalued stock, ranking below 63% of competitors. Additionally, the PEG ratio (which adjusts P/E for earnings growth) indicates that the current price does not fully reflect the company’s growth potential. These figures together give the stock a valuation rating of 8 out of 10, placing it firmly in the “cheap” category.
Profitability – Margins Tell a Strong Story
A low valuation is only attractive if the underlying business is solidly profitable. Radian’s profitability rating of 6 out of 10 hides some standout numbers. The company has a profit margin of 40.28%, which puts it in the top 12% of its industry. The operating margin of 62.17% is even more impressive – better than 92% of peers. Both margins have improved in recent years. Return on equity (11.69%) and return on assets (5.28%) are both above average, though the return on invested capital (6.72%) is more moderate. These figures confirm that Radian is not just cheap; it is also efficiently generating profits from its operations.
Health – Solid but with One Flag
Financial health is where the picture becomes slightly more nuanced. Radian’s health rating is 6 out of 10, which is decent but not stellar. The debt-to-equity ratio is very low at 0.16, indicating minimal reliance on leverage. The debt-to-free-cash-flow ratio of 3.81 suggests the company could pay off all debt in under four years using free cash flow – a healthy sign. The current and quick ratios are both 1.19, above industry medians, so liquidity is adequate.
The one major caveat is the Altman Z-score of 1.62, which falls into the “distress zone” and suggests some theoretical bankruptcy risk. However, it is important to put this in context: within the financial services industry, a Z-score below 1.8 is not uncommon for mortgage insurers because of their business model. Radian actually outperforms 73% of its industry peers on this metric. The company also has a history of reducing shares outstanding, which is a positive signal for shareholders.
Growth – Past Strength, Accelerating Revenue Ahead
Radian’s growth rating of 6 out of 10 reflects a mixed but promising picture. Past earnings per share growth has been strong: 10.73% over the last year and 19.89% annualised over the longer term. Revenue grew 8.29% in the most recent year, although the multi-year average shows a slight decline of -3.59% due to cyclical factors. Looking forward, analysts expect earnings per share to grow at 9.23% annually and revenue to accelerate sharply at 33.12% per year. While the EPS growth rate is decelerating from its recent high, the revenue acceleration suggests the company is expanding its top line meaningfully.
Dividend – A Reliable Income Component
Value investors often appreciate a dividend, and Radian delivers. The forward dividend yield of 2.67% exceeds both the industry average (1.84%) and the S&P 500 average (1.74%). The company has paid and increased its dividend for at least 10 consecutive years, with a compound annual growth rate of 15.69%. The payout ratio of 25.55% is low and sustainable, though dividend growth is currently outpacing earnings growth, which could become a headwind over time. Overall, the dividend rating is 7 out of 10.
Putting It All Together
The Decent Value screen seeks stocks where valuation is the primary attraction but does not sacrifice profitability, health, or growth. Radian Group fits that profile: its valuation scores are among the strongest in its industry, margins are excellent, the balance sheet is conservatively leveraged, and future revenue growth is expected to accelerate. The Altman Z-score warrants monitoring, but within the context of its peer group, it is not an outlier.
For a deeper look into the numbers, you can view the full fundamental analysis report on ChartMill, which breaks down each component in detail.
If Radian’s profile aligns with your investment style, you may want to explore other candidates that meet the same criteria. You can run the Decent Value Stock Screen yourself to uncover additional stocks with strong valuation, decent profitability, healthy finances, and moderate growth.
This article is for informational purposes only and does not constitute investment advice. Always conduct your own research before making any trading or investing decisions.
Read full article here »