QBE Insurance Group Ltd (ASX: QBE) shares have been on an absolute tear since the start of the year, surging over 40% from just $10 to today's price of $14.30, however QBE is now expensive relative to the past, despite the fact that its share price remains well below it's all time high, so should you sell up now?
All-Time High
Many investors will remember the good ol' days of 2007/08 when QBE's share price hit $35.49 and the company reported net profit of $1.925 billion, earnings per share (EPS) of $2.17, and dividend per share (DPS) of 122 cents. This represented a price to earnings ratio of 16 and dividend yield of nearly 4%.
Looks Expensive Today
Let's compare QBE's current performance to that of 2007. Analysts expect QBE will report earnings per share of 72.5 cents and dividends per share of 40.5 cents in the 2015 financial year. At today's price, that represents a lofty price to earnings ratio of 19 and dividend yield of nearly 3%.
There is some upside potential to that if the company maintains its current run rate, but as far as we know, QBE remains on track to hit full-year guidance of gross written premium (GWP) between US$15.5bn and US$15.9bn, net earned premium (NEP) between US$12.6bn and US$13.0bn, and combined operating ratio (COR) between 94% and 95%.
The Future
If we look two years into the future, the average of 15 analysts that have produced forecasts is EPS of 94 cents and DPS of 54 cents, implying a two-year increase of 30% and 33% respectively. At today's price, that represents a forward price to earnings ratio of 15 and dividend yield of nearly 4%.
Looking back, I find it incredible that QBE still looked good value in late 2007 before the GFC hit. Based on the numbers above, QBE certainly isn't the bargain it was in 2014, but on a long-term view it could be a good investment.
Risks
The biggest risk for investors is that QBE's new management team is unable to turn around the massive ship that is QBE's global operations. Poor management contributed to the company slipping from a huge profit to a loss in the space of 6 years and only good management will dig the company out.
