Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.
Today I’m looking at Legal & General (LSE: LGEN) (NASDAQOTH: LGGNY.US) to ascertain if its share price can return to 219p.
Initial catalyst
As usual, we need to establish what drove Legal & General’s share price to 219p, before we can establish if it will head back to this level again. However, I should mention that according to my data, after Legal & General’s share price reached 219p, back at the beginning of 1999, the company undertook a four-for-one share split, indicating that the pre-split price was significantly higher than 219p per share.
Still, the figures I will be using throughout this piece are adjust for this split.
Nonetheless, when Legal & General reached its high back in 1999, the market as a whole was being swept up by the internet bubble. Indeed, Legal & General hit its all-time high shortly before the FTSE 100 it its own all-time high of 6,930.
Indeed, Legal & General reported a post-split earnings per share figure of 11.4p for 1999, implying that the company was trading at a forward P/E of 19.2 when it hit 219p. This is a high valuation, especially for an insurance company. Insurance companies tend to trade at low valuations as profitability can vary significantly from year to year.
But can Legal & General return to its former glory?
Having said all of that, Legal & General is currently trading within a whisker of its all-time of 219p. Unfortunately, Legal & General’s valuation has also crept higher again and the company currently trades at a historic P/E of 15.1, almost double its 10-year average P/E of nine.
However, as Legal & General’s profitability is somewhat linked to the performance of financial markets, the company’s earnings growth is out of its control. Still, at present market sentiment is positive and it is likely to remain this way in the short-term, giving the company a base to make another run at 219p.
In addition, Legal & General is currently benefiting from an aging population and the government’s recent initiates to enrol workers into pension schemes, which should boost income.
Foolish summary
So all in all, with Legal & General’s record high only a hop and a skip away, the company’s share price is likely to return to 219p soon.
That said, at present, Legal & General’s valuation looks stretched, although the company’s performance is strongly linked to that of the financial markets and while market sentiment remains positive Legal & General should surge higher.
So overall, I feel that Legal & General can return to 219p.
