The Decent Value screen is built on a fundamental value investing premise: the cheapest stock in the market is not always the best bargain. To separate genuine undervaluation from value traps, the screen requires that a candidate combine an attractive valuation with acceptable profitability, financial health, and growth. NMI HOLDINGS INC (NASDAQ:NMIH), a provider of private mortgage guaranty insurance, fits that profile and was flagged by the screen as a stock where the market price may not fully reflect the underlying quality of the business.
A disciplined approach to value
The methodology behind the Decent Value screen is rooted in the classical value investing tradition, where the goal is to buy a business for less than it is worth rather than simply buying what is cheap. Benjamin Graham and David Dodd argued that the margin between intrinsic value and market price is what protects investors from permanent capital loss. The screen translates that idea into a practical filter: it starts with stocks that trade at a significant discount on common valuation multiples, then verifies that the company is still profitable, financially sound, and capable of growth. A company that fails any of those checks may be cheap for a reason; a company that passes all of them offers a more credible margin of safety.
NMI Holdings passes the valuation test in a way that stands out even among the stocks that make it through the screen. The overall fundamental report gives the company a 5/10 score, but the two components that matter most for a value thesis are stronger: valuation rates 7/10 and profitability rates 7/10.
The valuation case
NMI Holdings trades at a trailing price/earnings ratio of 8.85, well below the industry average of 21.63 and far below the S&P 500 average of 26.53. The forward P/E is even lower at 8.22. On other valuation metrics, the picture is similar:
- Price/earnings: 8.85, cheaper than 69.70% of industry peers
- Price/forward earnings: 8.22, cheaper than 67.68% of industry peers
- EV/EBITDA: cheaper than 85.86% of industry peers
- Price/free cash flow: cheaper than 81.82% of industry peers
- PEG ratio: considered fair once expected growth is included
These are not distressed, broken-company levels, but they are low enough to leave room for disappointment while still rewarding patient holders. An investor pays roughly nine times trailing earnings for NMI Holdings, versus more than 26 times for the average S&P 500 constituent. For a full view of the underlying ratios and scores, investors can check the detailed fundamental analysis report.
Profitability: the quality filter
A low multiple is only useful if the underlying business earns a solid return on its capital. NMI Holdings has recorded positive earnings and positive operating cash flow in each of the past five years, and its return metrics place it near the top of the Financial Services industry:
- Return on assets: 9.89%, better than 88.89% of industry peers
- Return on equity: 14.61%, better than 69.70% of industry peers
- Return on invested capital: 10.67%, better than 83.84% of industry peers
- Profit margin: 54.10%, better than 92.93% of industry peers
- Operating margin: 73.24%, better than 95.96% of industry peers
The margins are particularly notable for a value-oriented stock. A profit margin above 50% and an operating margin above 70% suggest the company is not scraping for every dollar of revenue. That reduces the risk that the cheap valuation reflects deteriorating economics.
Health and growth: the areas to watch
The financial health rating of 5/10 is more moderate, although the underlying solvency data look controlled. Debt to free cash flow is 0.95, meaning the company could repay all of its debt with less than a year of free cash flow; debt to equity is a modest 0.15. Both figures are better than the majority of the industry. The share count has also declined over both the past year and the past five years, which supports per-share results. The one gap is the absence of reported liquidity data, so investors should examine short-term coverage before committing.
Growth is where the story becomes more measured. Historical performance is strong: earnings per share grew at an annualized 17.31% over the past several years, while revenue grew at 10.27% per year. Recent figures are softer, with EPS up 7.42% and revenue up 7.53% over the past year, and analysts expect forward EPS growth of roughly 4.98% per year with revenue growth of about 3.75%. That deceleration is reflected in the growth rating of 4/10, and it means the investment case depends more on the current valuation than on a rapid acceleration story.
What this means for value investors
The mix of a cheap valuation, robust profitability, and manageable debt is exactly the profile the Decent Value screen was designed to capture. There are caveats. The company pays no dividend, so income-oriented value investors lose that cushion while waiting for the market to re-price the stock. And as a mortgage guaranty insurer, NMI Holdings is tied to the housing cycle and to borrower default rates; a prolonged downturn would pressure both earnings and the share price. For investors who can accept that cyclicality, the current price provides a margin of safety that is relatively scarce in a market where the broad index is trading at elevated multiples.
A classic value confirmation
The Graham Number screen offers an independent value check: it uses earnings and book value per share to estimate a conservative fair value, and NMIH is trading below that threshold. That supports the Decent Value thesis by showing the discount is not an artifact of one valuation method. Investors looking for similar candidates can open the Graham Number screen.
Investors who want to apply the same methodology to their broader search can review the predefined Decent Value screen, which regularly updates the list of stocks that meet these value-and-quality criteria. The latest selection, which produced NMI Holdings as a candidate, is available on the Decent Value screen results page.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »
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NMI Holdings (NASDAQ:NMIH) Stands Out as a Decent Value Stock
The Decent Value screen is built on a fundamental value investing premise: the cheapest stock in the market is not always the best bargain. To separate genuine undervaluation from value traps, the screen requires that a candidate combine an attractive valuation with acceptable profitability, financial health, and growth. NMI HOLDINGS INC (NASDAQ:NMIH), a provider of private mortgage guaranty insurance, fits that profile and was flagged by the screen as a stock where the market price may not fully reflect the underlying quality of the business.
A disciplined approach to value
The methodology behind the Decent Value screen is rooted in the classical value investing tradition, where the goal is to buy a business for less than it is worth rather than simply buying what is cheap. Benjamin Graham and David Dodd argued that the margin between intrinsic value and market price is what protects investors from permanent capital loss. The screen translates that idea into a practical filter: it starts with stocks that trade at a significant discount on common valuation multiples, then verifies that the company is still profitable, financially sound, and capable of growth. A company that fails any of those checks may be cheap for a reason; a company that passes all of them offers a more credible margin of safety.
NMI Holdings passes the valuation test in a way that stands out even among the stocks that make it through the screen. The overall fundamental report gives the company a 5/10 score, but the two components that matter most for a value thesis are stronger: valuation rates 7/10 and profitability rates 7/10.
The valuation case
NMI Holdings trades at a trailing price/earnings ratio of 8.85, well below the industry average of 21.63 and far below the S&P 500 average of 26.53. The forward P/E is even lower at 8.22. On other valuation metrics, the picture is similar:
These are not distressed, broken-company levels, but they are low enough to leave room for disappointment while still rewarding patient holders. An investor pays roughly nine times trailing earnings for NMI Holdings, versus more than 26 times for the average S&P 500 constituent. For a full view of the underlying ratios and scores, investors can check the detailed fundamental analysis report.
Profitability: the quality filter
A low multiple is only useful if the underlying business earns a solid return on its capital. NMI Holdings has recorded positive earnings and positive operating cash flow in each of the past five years, and its return metrics place it near the top of the Financial Services industry:
The margins are particularly notable for a value-oriented stock. A profit margin above 50% and an operating margin above 70% suggest the company is not scraping for every dollar of revenue. That reduces the risk that the cheap valuation reflects deteriorating economics.
Health and growth: the areas to watch
The financial health rating of 5/10 is more moderate, although the underlying solvency data look controlled. Debt to free cash flow is 0.95, meaning the company could repay all of its debt with less than a year of free cash flow; debt to equity is a modest 0.15. Both figures are better than the majority of the industry. The share count has also declined over both the past year and the past five years, which supports per-share results. The one gap is the absence of reported liquidity data, so investors should examine short-term coverage before committing.
Growth is where the story becomes more measured. Historical performance is strong: earnings per share grew at an annualized 17.31% over the past several years, while revenue grew at 10.27% per year. Recent figures are softer, with EPS up 7.42% and revenue up 7.53% over the past year, and analysts expect forward EPS growth of roughly 4.98% per year with revenue growth of about 3.75%. That deceleration is reflected in the growth rating of 4/10, and it means the investment case depends more on the current valuation than on a rapid acceleration story.
What this means for value investors
The mix of a cheap valuation, robust profitability, and manageable debt is exactly the profile the Decent Value screen was designed to capture. There are caveats. The company pays no dividend, so income-oriented value investors lose that cushion while waiting for the market to re-price the stock. And as a mortgage guaranty insurer, NMI Holdings is tied to the housing cycle and to borrower default rates; a prolonged downturn would pressure both earnings and the share price. For investors who can accept that cyclicality, the current price provides a margin of safety that is relatively scarce in a market where the broad index is trading at elevated multiples.
A classic value confirmation
The Graham Number screen offers an independent value check: it uses earnings and book value per share to estimate a conservative fair value, and NMIH is trading below that threshold. That supports the Decent Value thesis by showing the discount is not an artifact of one valuation method. Investors looking for similar candidates can open the Graham Number screen.
Investors who want to apply the same methodology to their broader search can review the predefined Decent Value screen, which regularly updates the list of stocks that meet these value-and-quality criteria. The latest selection, which produced NMI Holdings as a candidate, is available on the Decent Value screen results page.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »