After the Prudential share price falls 33%, am I seeing a no-brainer buy?

The Prudential share price was looking set for recovery in 2021. It’s headed back down in 2022, and once again I’m considering buying.

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The Prudential (LSE: PRU) share price has fallen by a third over the past 12 months, to reach its lowest level since 2020. I missed the chance to buy back then. But I might just have an opportunity to rectify that now.

But after 170 years of being a trusted name in the insurance business, why has Prudential fallen out of favour with investors? I think there’s one key reason.

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It all stems from the demerger of of the firm’s asset management arm, resulting in the creation of M&G. That happened in late 2019. Then Covid-19 arrived, and the entire financial sector was hammered. Banks and insurance companies suffered a big slump again.

New focus

The new Prudential changed its focus after the split, going for life insurance and financial services business in developing economies.

So investors were faced with a new version of Prudential, substantially different from the venerable one of old. The new Pru was adopting an almost certainly riskier focus.

Then, after the pandemic finally started to recede, the world’s economies were hit by a seriously deteriorating outlook. Oh, and there’s a war going on now, with fallout hitting developing countries too.

They’re not the biggest customers for insurance products in the first place. The hope is that, as they emerge and grow further, that will change. But a global economic squeeze is hardly going to help in that direction.

Forecast valuation

So, after that string of woes, who’d buy Prudential shares now? Well, I think I would. Even with the uncertainty, analysts are still upbeat about the Pru in 2022. Forecasts put the shares on a potential price-to-earnings (P/E) ratio of around 11.5.

I don’t see that as too stretching, even if it might not suggest a no-brainer buy in itself. But with analysts expecting a couple of years of rising earnings, we could see the P/E drop to less than 8.5 by 2024.

A couple of months ago, I was tempted to buy. But I found something I liked better for my money at the time. And I do already have an interest in the sector in my Aviva shares.

But the share price has fallen further since then. And those forecasts do look enticing. I do have to remind myself of one thing, though. Forecasts are often very unreliable. And the current global outlook probably makes the forecasting art especially tricky right now.

Wait for results?

First-half results, the first under new chief executive Anil Wadhwani, could be telling. They’re not due until 11 August, so I wonder if I might miss a buying opportunity if I wait. But then, I’ve never tried to time my purchases anyway.

The other thing that increases my hesitation is the large number of alternative buys out there now, many of which I see as super cheap. I do like the insurance business as an investment, but I wonder if topping up on Aviva might be better.

I may well buy Prudential shares before too much longer. But I think I will wait for those H1 figures first.

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