If you are wondering whether Fairfax Financial Holdings is still offering value at around C$2,326.23 per share, you are not alone. Many investors are asking the same question.
The stock has had a mixed run recently, with a 2.3% decline over the last 7 days, a 0.7% gain over the last 30 days, and year to date returns of a 10.7% decline, set against a 14.5% gain over the last year and a very large 5 year return that is around 4x.
Recent news coverage has focused on Fairfax Financial Holdings as a long term compounder in insurance and investment operations, alongside commentary on how its share price performance compares to other large Canadian financials. This context helps explain why some investors are reassessing both the upside potential and the risk profile at current levels.
On our valuation checks, Fairfax Financial Holdings currently earns a score of 5 out of 6. This sets up a closer look at how different valuation approaches line up, and hints at an even more helpful way to think about value that we will come back to at the end of the article.
The Excess Returns model looks at how much profit a company can generate above the return that equity investors typically require, and then capitalizes those “extra” returns into an estimate of intrinsic value.
For Fairfax Financial Holdings, the model is built around its equity base and expected profitability. Book Value is CA$1,246.68 per share and the Stable Book Value estimate is CA$1,415.73 per share, based on weighted future Book Value estimates from 5 analysts. On those assets, analysts expect Stable EPS of CA$188.94 per share, sourced from weighted future Return on Equity estimates from 5 analysts, implying an Average Return on Equity of 13.35%.
The model assumes a Cost of Equity of CA$88.54 per share, so the implied Excess Return is CA$100.40 per share. When these excess returns are projected and capitalized, the Excess Returns valuation points to an intrinsic value of about CA$5,995.16 per share, compared with the current price around CA$2,326.23. That gap implies the shares are 61.2% undervalued on this approach.
For a profitable company like Fairfax Financial Holdings, the P/E ratio is a useful way to relate what you are paying for each share to the earnings that company is generating today. Investors usually accept a higher or lower P/E depending on what they think about a company’s future growth and the risks they see in its business.
Fairfax currently trades on a P/E of 7.38x. That sits below the Insurance industry average P/E of 12.28x and below the broader peer average of 15.68x. On the surface, that suggests the market is assigning a lower earnings multiple to Fairfax than to many other insurers and financial peers.
Simply Wall St also estimates a Fair Ratio for Fairfax of 8.55x. This is a proprietary view of what the P/E might be given factors such as earnings growth, profitability, industry, market cap and company specific risks. Because it brings those elements together in one number, the Fair Ratio can be more tailored than a simple comparison with industry or peer averages.
With a current P/E of 7.38x versus a Fair Ratio of 8.55x, Fairfax appears undervalued on this multiple based approach.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about Fairfax Financial Holdings linked directly to a financial forecast and a Fair Value that you can compare with the current share price to decide whether it looks attractive to you at any given time.
On Simply Wall St, Narratives sit in the Community page and let you plug in your own expectations for future revenue, earnings and margins. Instead of only looking at a P/E like 7.38x versus an 8.55x Fair Ratio, you spell out why you think Fairfax should, for example, be closer to a bullish Fair Value around CA$2,990.19 per share or nearer a more cautious Fair Value closer to CA$1,649.10. The platform keeps those Narratives updated when new news or earnings arrive, so your view stays current without extra work.
For Fairfax Financial Holdings however we will make it really easy for you with previews of two leading Fairfax Financial Holdings Narratives:
Each one reflects a different view on where value sits today, using the same core data but with different assumptions about earnings quality, risks and the multiple the market might be willing to pay.
🐂 Fairfax Financial Holdings Bull Case
Fair value: CA$2,707.92 per share
Implied undervaluation: 14.1% relative to the last close of CA$2,326.23
Revenue growth assumption: 6.1% a year
Analysts in this camp see Fairfax as broadly in line with their fair value, with a consensus price target of about CA$2,634.30 that sits only modestly above the current share price.
The story assumes steady revenue growth, shrinking profit margins from 12.1% to 6.9% by 2028 and earnings of about US$2.9b, with the share count drifting lower through buybacks.
To reach that fair value, the company would need to trade on a higher P/E of 16.0x by 2028, with analyst models using a discount rate close to 6.1%.
🐻 Fairfax Financial Holdings Bear Case
Fair value: CA$1,643.61 per share
Implied overvaluation: 41.5% relative to the last close of CA$2,326.23
Revenue growth assumption: 6.4% a year
The cautious view highlights execution risks from climate exposures, regulation, digital competitors and concentrated investments, with fair value anchored near the lower end of analyst targets.
This narrative still uses mid single digit revenue growth, but assumes profit margins settle lower at about 4.8% and applies a future P/E of 12.5x, with a discount rate just above 6.1%.
On these assumptions, fair value of roughly CA$1,643.61 sits well below the current share price, so this camp sees the market as pricing in more optimism than their models support.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include FFH.TO.
