The stock of NMI Holdings (NAS:NMIH, 30-year Financials) is believed to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $23.2 per share and the market cap of $2 billion, NMI Holdings stock appears to be modestly undervalued. GF Value for NMI Holdings is shown in the chart below.
Because NMI Holdings is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 24.2% over the past three years and is estimated to grow 12.43% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. NMI Holdings has a cash-to-debt ratio of 0.31, which which ranks worse than 85% of the companies in Insurance industry. The overall financial strength of NMI Holdings is 5 out of 10, which indicates that the financial strength of NMI Holdings is fair. This is the debt and cash of NMI Holdings over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. NMI Holdings has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $436.2 million and earnings of $2.11 a share. Its operating margin of 0.00% in the bottom 10% of the companies in Insurance industry. Overall, GuruFocus ranks NMI Holdings's profitability as fair. This is the revenue and net income of NMI Holdings over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. NMI Holdings's 3-year average revenue growth rate is better than 92% of the companies in Insurance industry. NMI Holdings's 3-year average EBITDA growth rate is 39.5%, which ranks better than 92% of the companies in Insurance industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, NMI Holdings's return on invested capital is 12.20, and its cost of capital is 11.69. The historical ROIC vs WACC comparison of NMI Holdings is shown below:
In summary, the stock of NMI Holdings (NAS:NMIH, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 92% of the companies in Insurance industry. To learn more about NMI Holdings stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
