At the current stock price of $44.48, Mercury is trading on an undemanding PE ratio of 6.11 and a somewhat generous price to book value of 1.38 times. Caution however must be warranted given the extraordinarily high profits the company realized in fiscal 2009 resulting from realized gains of $341 million. This was however after a realized loss of $551 million in 2008 during the height of the financial market crisis. On normalized basis earnings were around about $3 per share (this excludes unusual items such as realized gains or losses on large parts of an insurance company's equity portfolio, as well as a subsequently adjusted tax rate). That puts the company on a historical PE of about 14.82 times.
However the company is on a less than 6 times price to cash flow and a price to sales ratio of 0.78, which indicates investors can pick up more sales per share for a lower price. The outlook in terms of investment returns is set to prove and the underwriting margin should also normalize after relatively high claims during fiscal 2009.