Suncorp trucks on

Investors are jumping aboard, but isn't it expensive?

Owen Raszkiewicz

Owen Raszkiewicz is a Motley Fool Contributor. Owen has been a Contributor since 2013, having also spent time as a Fool writer/analyst. He also worked as an Investment Analyst at Zenith Investment Partners, Australia's top research house specialising in managed funds. Owen has appeared on Channel 10's The Project and was invited on the BBC. He holds a Masters of Applied Finance, Masters of Financial Planning, Bachelor of Technology, Advanced Diploma of Financial Services and Diploma of Mortgage Broking Management. In addition, Owen has passed Level 1 of the Chartered Financial Analyst (CFA) Program. He has taken the Banking + Finance Oath (BFO). When he is not writing, Owen is Managing Director of Rask Finance, an Australian financial education company. You can email him: [email protected].

Published July 10, 2013 12:26 pm AEST

Suncorp (ASX: SUN) shares have again opened firmer as investors try to grab a piece of the companies expected future success.

Up over 1.6% in early trading, Suncorp is the best performing insurance play when compared to its two closest rivals, QBE Insurance (ASX: QBE) and Insurance Australia Group (ASX: IAG). However, value investors may be becoming concerned the rising earnings ratio of the stock is pushing passed 23.

Investors should only use the P/E ratio as a very rough guide for valuing stocks, although they can be forward or current earnings estimates. Earnings per share (EPS) is a better way to gauge the growth of the company but even that can be wrong.

Looking at the numbers, including healthy balance sheets and fancy ratios only tell part of the story. Solid management, good products and a healthy long term upside need to be considered before buying a stock.

Based on current earnings, Suncorp has a PE of almost 23 but with Morningstar's 2014 forecasted earnings, that will drop to around 12. In addition, Suncorp's insurance brands which include GIO, AAMI, APIA, Suncorp, Vero and Shannons have good prospects and are led by well-equipped and experienced managers.

Since clearing out most of the 'bad bank' debt to Goldman Sachs, it seems Suncorp has finally recovered from the GFC and its balance sheet is starting to freshen up. Although the stock has risen almost 50% this year, it still remains a good long term investment.

Foolish takeaway

Punters hoping for a short-term kick in share price may be surprised when the annual report is released on 21 August. The sale of debt to Goldman will result in a net loss of around $490 million and will consume a large portion of the gains the company made in its first half to 31 December 2012. Paying a dividend of 4.3% fully franked, Suncorp ticks all the right boxes for many investors.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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