Legal & General shares have surged approximately 12% over the past year, driven by strong profit momentum across its retail and institutional divisions. The FTSE 100 insurance and asset management company has attracted significant investor interest thanks to both capital appreciation and its generous dividend policy. Investors who purchased 1,001 shares twelve months ago would now be sitting on a £249 capital gain, with total returns including dividends reaching £464.
The share price rally has lifted the stock’s valuation from £2,399 to £2,648 for that shareholding amount. However, this strong performance has raised questions among analysts about whether Legal & General shares can maintain their upward trajectory given current valuation metrics.
Legal & General Valuation Concerns Emerge
Despite the impressive gains, Legal & General shares now appear expensive according to several traditional valuation measures. The company’s forward price-to-earnings ratio has climbed to 11.5 times, notably above its 10-year average of approximately nine times. Additionally, the firm’s price-to-book ratio has reached 6.4 times, significantly higher than its long-term average range of two to three times.
However, some valuation metrics paint a more favorable picture. The company’s PEG ratio of 0.3 sits comfortably below the bargain threshold of one, suggesting the shares may still offer value when considering predicted earnings growth. This creates a mixed valuation picture that makes assessing the stock’s true worth more challenging for investors.
Strong Operating Performance Drives Gains
The company’s operational performance has remained robust despite ongoing economic pressures. According to the firm’s financial results, core operating earnings per share increased 9% in the first half of 2025, reaching the top end of its 6%-9% target range. This strong performance has occurred even as consumers continue to navigate cost-of-living challenges.
Meanwhile, sales growth continued across Legal & General’s retail and institutional divisions. The company benefits from favorable demographic trends, as aging populations across its markets naturally drive demand for life insurance, pensions, investment products, and savings solutions. These secular tailwinds provide a foundation for sustained growth in core business lines.
Market Risks Could Impact Future Performance
Nevertheless, several significant threats could derail the positive momentum. The enduring cost-of-living crisis and weak economic growth in key markets like the United Kingdom pose challenges to consumer spending power. Additionally, intense competition across the company’s product lines continues to pressure margins and market share.
In contrast to the potential benefits from falling interest rates, which could boost consumer spending power, a stock market downturn represents another material risk. Such a scenario would negatively impact the company’s asset management division, potentially undermining overall profitability and share price performance.
Investment Outlook Remains Uncertain
The elevated price-to-book ratio of 6.4 times presents particular concern for near-term share price appreciation. Market observers note that this valuation level could trigger a sharp correction if investor confidence weakens or economic conditions deteriorate. However, supporters argue the premium valuation reflects the company’s high-quality business model and strong competitive position.
Analysts remain divided on whether the current valuation multiples are justified given the company’s growth prospects and market position. While Legal & General shares have demonstrated strong momentum, the stretched valuation metrics suggest limited room for further expansion without corresponding earnings growth.
Investors will likely monitor the company’s upcoming full-year results closely to determine whether operational performance can justify current valuation levels and support continued share price gains. The sustainability of earnings growth and dividend payments will be key factors influencing future investor sentiment toward the stock.
