The Motley Fool Previous Page

How Direct Line Insurance Measures Up As a GARP Investment

Royston Wild
June 17, 2013

LONDON -- A popular way to dig out reasonably priced stocks with robust growth potential is through the "Growth At A Reasonable Price," or GARP, strategy. This theory uses the price-to-earnings to growth (PEG) ratio to show how a share's price weighs up in relation to its near-term growth prospects -- a reading below 1 is generally considered decent value for money.

Today I am looking at Direct Line Insurance Group (LSE: DLG) to see how it measures up.

What are Direct Line Insurance Group's earnings expected to do?

  2013 2014
EPS Growth -14% 24%
P/E Ratio 11.4 9.2
PEG Ratio n/a 0.4

Source: Digital Look.

Direct Line was spun off from Royal Bank of Scotland and listed on the London Stock Exchange in October of last year. In its full maiden year as a separate entity in 2013, the firm is expected to punch a double-digit earnings fall before recovering robustly in the following 12-month period.

The predicted loss for the current year results in an invalid PEG rating, although this is forecast to register some way below the value watermark of 1 in 2014. Also, Direct Line's price-to-earnings (P/E) ratio is anticipated to fall below 10 next year, territory that represents decent value for money.

Does Direct Line Insurance Group provide decent value against its rivals?

  FTSE 250 Non-Life
Prospective P/E Ratio 17.4 10.5
Prospective PEG Ratio 6.2 1.8

Source: Digita