Challenger Ltd share price flops 15%: Is it a value buy?

Credit: .coomb.

What: On Wednesday the share price of financial services firm Challenger Ltd (ASX: CGF) – which enjoys a market-leading position in the provision of annuities – flopped a massive 6.8% despite no specific news.

Admittedly, it was a bad day for the market as a whole with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) sinking 1.3%.

Other financial sector stocks also found the going tough on Wednesday. For example, Australia and New Zealand Banking Group (ASX: ANZ) was out-of-favour with investors and under selling pressure; the bank’s stock closed the day down 4.4%.

So What: Since the beginning of calendar year 2015, Challenger’s share price has now lost a total of 15.4% with the past five trading sessions responsible for 10.8% of that overall decline.

The move lower has taken the stock below the $7.50 level (it closed on Wednesday at $7.37) which means the stock now trades closer to its 52-week low of $6.08, than its 52-week high of $9.

Now What: Analyst consensus data provided by Morningstar shows a forecast earnings per share for the 2016 financial year of 59.4 cents per share (cps) and a forecast total dividend of 32.5 cps.

These forecasts when combined with the recent falls in the share price have placed the stock on what some may consider an undemanding price-to-earnings (PE) multiple of 12.4x and an attractive fully franked dividend yield of 4.4%.

Indeed, with the financial index trading on a forecast PE multiple of 13 times, Challenger appears to be trading at a discount to its peers.

Why These 3 Blue Chip Shares Look Set to Soar in 2016

Discover The Motley Fool's top 3 blue chips for 2016. These 3 "new breed" shares pay fully franked dividends AND offer the very real prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.