Progressive has been treading water for the past six months, recording a small return of 4.4% while holding steady at $215.87. The stock also fell short of the S&P 500’s 13.6% gain during that period.
Does this present a buying opportunity for PGR? Or is its underperformance reflective of its story and business quality? Find out in our full research report, it’s free.
Why Are We Positive on PGR?
Starting as a small auto insurance company in 1937 with a pioneering focus on high-risk drivers, Progressive (NYSE:PGR) is a major auto, property, and commercial insurance provider that offers policies through independent agents, online platforms, and over the phone.
1. Skyrocketing Revenue Shows Strong Momentum
Insurance companies earn revenue from three primary sources: 1) The core insurance business itself, often called underwriting and represented in the income statement as premiums 2) Income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities 3) Fees from various sources such as policy administration, annuities, or other value-added services.
Thankfully, Progressive’s 14.8% annualized revenue growth over the last five years was exceptional. Its growth beat the average insurance company and shows its offerings resonate with customers.
2. Net Premiums Earned Skyrocket, Fueling Growth Opportunities
When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore gross premiums less what’s ceded to reinsurers as a risk mitigation and transfer strategy.
Progressive’s net premiums earned has grown at a 14.9% annualized rate over the last two years, much better than the broader insurance industry and in line with its total revenue.
3. Stellar ROE Showcases Lucrative Growth Opportunities
Return on equity (ROE) is a crucial yardstick for insurance companies, measuring their ability to generate returns on the capital provided by shareholders. Insurers that consistently deliver superior ROE tend to create more value for their investors over time through strategic capital allocation and shareholder-friendly policies.
Over the last five years, Progressive has averaged an ROE of 24.7%, exceptional for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This shows Progressive has a strong competitive moat.
Final Judgment
These are just a few reasons why Progressive ranks near the top of our list. With its shares underperforming the market lately, the stock trades at 3.5× forward P/B (or $215.87 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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