American International Group (NYSE:AIG) has had a ton of attention ever since the company's near-collapse at the start of the financial crisis in 2008. And though the company has taken great strides to right itself since then, a huge percentage of the market is missing one key fact about the company in terms of its suitability as an investment.


By the book
As of Monday's close, new investors in AIG could anticipate an automatic 25.9% upside to their investment. Why? Because though AIG has righted itself, the company is still undervalued based on its share price compared to its book value (excluding accumulated other comprehensive income) per share.

Along with some other key ratios, evaluating book value per share allows investors to determine whether a company is valued properly on the market. Essentially, it gives you a proxy of how much value per share each stockholder would take home if the company was liquidated. The BVPS is easily calculated too -- just divide the total shareholder equity (excluding AOCI) by total shares outstanding. AIG's BPVS calculation is as follows for the third quarter of 2013:


With Monday's close reaching $49.80 per share, the company's upside was obvious. And compared to some of its closest competitors, AIG represents a stronger buy opportunity as of the third quarter 2013.

CompanyBVPSMarket Close 11/25/13Price/Book Ratio
AIG  $62.68 $49.80  0.79
MetLife (NYSE:MET)  $54.36  $52.44  0.96
Hartford Financial Group (NYSE:HIG) $42.20  $35.86  0.85
Genworth Financial (NYSE:GNW)  $29.56  $15.28  0.52
Allstate (NYSE:ALL)  $40.37  $54.44  1.35

Source: Yahoo! Finance and company earnings reports.

Each of the competitors listed participate in the various markets that AIG's various divisions operate in. Both MetLife and Hartford work in retirement services, while Genworth also provides private mortgage insurance. Allstate is one of AIG's largest competitors in the property and casualty markets.

As the table shows, only Genworth Financial is a better buy than AIG, with its share price representing only 52% of its book value per share as of Monday's close. But since AIG's operations have a wider scope than Genworth's, investors could argue either way on which is a better deal.

The bigger question
For some investors, the fact that AIG's stated book value is higher than the share price isn't convincing. After all, the financial crisis taught most of us that companies can grossly overstate their values. So in order to reconcile the skepticism, you have to ask whether or not AIG is really worth its book value. Since equity is equivalent to the amount of value left over after the company's assets cover its liabilities, the question boils down to whether or not AIG's assets are worth their stated value.

Since the financial crisis, AIG has divested almost all of its non-core operations and assets, with its International Lease Finance Corp. representing the last piece of unresolved business. The largest component of AIG's assets are its investments, which AIG has to report at fair value. Based on its reporting for the third quarter, AIG used external sources (including broker quotes) to value 94% of its fixed maturity and equity securities, while only 6% were valued using internal sources.

This should be a sign to investors that the company takes its reporting seriously and wants to make sure the true value is represented in its quarterly and annual statements.

Looking ahead
Book value is a great way to start your analysis of a company, but since it represents only a snapshot of the company's current state, it's important to keep other metrics in mind as well. Be sure to look at a company's growth and development trends since book value won't give you any indication of a company's future performance.

In terms of AIG's outlook, the company has been expanding abroad (big time) and making new changes to its products in order to make them both more attractive to customers and more competitive.

Fool contributor Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends American International Group. The Motley Fool owns shares of American International Group and has the following options: long January 2016 $30 calls on American International Group. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.