Is PennyMac Financial Services (PFSI) Offering Value After Recent Share

• Wondering whether PennyMac Financial Services at around US$94.57 is priced for opportunity or already fully valued, this article walks through what the current share price might be implying.
• The stock has moved 3.5% over the last 7 days and 8.4% over the last 30 days, while the year-to-date return is a 28.1% decline and the 1-year return is a 1.4% decline, compared with a 53.8% and 71.6% gain over the past 3 and 5 years respectively.
• Recent coverage has focused on how the share price has shifted over different time frames, highlighting both shorter term volatility and longer term returns. This mix of time horizons has put more attention on whether the current price lines up with business fundamentals.
• PennyMac Financial Services currently has a valuation score of 6/6. The sections that follow compare what standard valuation methods suggest the shares might be worth, then finish with a different way of thinking about value that ties the numbers together.

PennyMac Financial Services delivered -1.4% returns over the last year. See how this stacks up to the rest of the Diversified Financial industry.

Approach 1: PennyMac Financial Services Excess Returns Analysis

The Excess Returns model looks at how much profit a company can earn above the return that equity investors typically require, then links that to the value of its equity base. Instead of focusing on cash flows, it starts from book value and return on equity.

For PennyMac Financial Services, the model uses a Book Value of $82.77 per share and a Stable EPS of $8.49 per share, based on the median return on equity from the past 5 years. The implied Cost of Equity is $7.40 per share, which suggests an Excess Return of $1.09 per share after covering investors’ required return. The Average Return on Equity is 8.51%, applied to a Stable Book Value estimate of $99.84 per share from two analysts’ future book value projections.

Using these inputs, the Excess Returns model points to an intrinsic value of about $127.02 per share. Compared with the recent share price of around $94.57, this implies a 25.5% discount, which indicates that the stock screens as undervalued on this approach.

Result: UNDERVALUED

Our Excess Returns analysis suggests PennyMac Financial Services is undervalued by 25.5%. Track this in your watchlist or portfolio, or discover 59 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for PennyMac Financial Services.

Approach 2: PennyMac Financial Services Price vs Earnings

For a profitable business like PennyMac Financial Services, the P/E ratio is a useful cross check because it links what you pay per share directly to the earnings that support that share price. It gives you a quick read on how much investors are paying for each dollar of current earnings.

What counts as a “normal” P/E depends largely on two things: growth expectations and…