How do you value the IAG (ASX:IAG) share price?

What are the company's shares really worth?

| More on:
Young boy wearing suit and glasses counts his money using a calculator.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

The Insurance Australia Group Ltd (ASX: IAG) share price has been moving in circles throughout the year. This comes as the insurance giant has been battling allegations and regulatory headwinds.

Nonetheless, investors appear to have mixed feelings about the value of IAG shares in the current climate.

At Thursday's market close, IAG shares finished down 1.79% to $4.94.

How do you value IAG shares?

The most common way to value an ASX share is to calculate the company's price-to-earnings (P/E) ratio. Traditionally, this metric is used to provide more clarity if a company is overvalued or undervalued.

A P/E ratio can be broken down as the relationship between a company's share price and its earnings per share (EPS).

Currently, IAG has a P/E ratio of 28.99. The formula to work out the P/E ratio is the current share price divided by EPS.

Essentially, this means that the company can be viewed as expensive when compared to its peers. Banking and insurance company, Suncorp Group Ltd (ASX: SUN) holds a P/E ratio of 15.85, while QBE Insurance Group Ltd (ASX: QBE) is hovering around 16.37.

How is IAG performing lately?

IAG released a trading update at its annual general meeting (AGM) last week, highlighting growth for FY22.

Gross written premium (GWP) improved in the first quarter of the financial year, lifting in the mid-single digit range. Guidance for the full-year is forecasted to increase in the low single-digit area.

IAG is also on track to meet its reported insurance margin guidance of 13.5% to 15.5%. During the lockdowns in both Australia and New Zealand, lower vehicle claims were made by customers. This is partly offset by inflationary pressure on claims costs in the company's motor and home portfolios.

However, weighing down the overall result for the Q1 FY22 period came from elevated natural perils costs. Rough storm activity and the earthquakes in Victoria were primarily to blame. IAG has set aside $765 million as a natural perils allowance buffer for the financial year.

Swiss investment firm, UBS cut its rating on IAG shares to "neutral" from "buy" in mid-October. Its analysts reduced the 12-month price target by 5.3% to $5.35 apiece. At the present price, this implies an upside of about 8%.

IAG share price summary

It's been a rollercoaster ride for IAG shares, having moved unpredictably over the past 12 months. Its shares are currently up just 5% since this time last year.

Based on valuation metrics, IAG has a market capitalisation of around $12.18 billion, with approximately 2.47 billion shares on issue.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Financial Shares

Shot of a young businesswoman looking stressed out while working in an office.
Financial Shares

Challenger shares fall on big APRA news

Let's see what is weighing on this stock on Friday.

Read more »

Buy and sell written on silver cubes on a stock market chart.
Broker Notes

2 buys and 2 sells in the ASX 200 financials sector: analysts

We reveal what the experts think of these ASX 200 financial shares.

Read more »

Man smiling at a laptop because of a rising share price.
Financial Shares

Macquarie tips around 40% upside for GQG Partners shares

This stock could deliver big returns.

Read more »

Three happy office workers cheer as they read about good financial news on a laptop.
Financial Shares

Macquarie tips 17% return for this ASX 200 stock

The broker is feeling bullish about this stock. Let's find out why.

Read more »

A female financial services professional with a manicured black afro hairstyle turns an ipad screen to show a client across the table a set of ASX shares figures in graph format.
Share Market News

Record CBA share price and blockbuster merger push ASX 200 financials sector to the top

ASX financial stocks led the 11 market sectors last week with a 1.95% gain.

Read more »

Man with rocket wings which have flames coming out of them.
Financial Shares

Up more than 900% in 5 years, can this ASX All Ords financials stock go higher?

The share price of this company has left others behind in the dust.

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Financial Shares

HMC Capital shares are down 50% in 2025, can they turn around?

HMC Capital shares have plunged more than 50% this year, but with solid investments in energy, private credit, and data…

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Financial Shares

Forget the Big 4 banks and buy these 2 compelling ASX 200 financials stocks

The Big 4 banks might be steady, but if you’re after real growth in financials, here are two modern, scalable…

Read more »