Over the last six months, CNA Financial’s shares have sunk to $44.58, producing a disappointing 8.5% loss - a stark contrast to the S&P 500’s 4.3% gain. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is now the time to buy CNA Financial, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Do We Think CNA Financial Will Underperform?

Even though the stock has become cheaper, we're cautious about CNA Financial. Here are three reasons why you should be careful with CNA and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Insurance companies generate revenue three ways. The first is the core insurance business itself, represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected but not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from policy administration, annuities, and other value-added services.

Over the last five years, CNA Financial grew its revenue at a mediocre 6.9% compounded annual growth rate. This fell short of our benchmark for the insurance sector.

2. Recent EPS Growth Below Our Standards

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

CNA Financial’s weak 8.3% annual EPS growth over the last two years aligns with its revenue trend. On the bright side, this tells us its incremental sales were profitable.

3. Substandard BVPS Growth Indicates Limited Asset Expansion

We consider book value per share (BVPS) a critical metric for insurance companies. BVPS represents the total net worth per share, providing insight into a company’s financial strength and ability to meet policyholder obligations.

To the detriment of investors, CNA Financial’s BVPS grew at a tepid 8.9% annual clip over the last two years.

Final Judgment

CNA Financial doesn’t pass our quality test. Following the recent decline, the stock trades at $44.58 per share (or a forward price-to-sales ratio of 0.8×). The market typically values companies like CNA Financial based on their anticipated profits for the next 12 months, but there aren’t enough published estimates to arrive at a reliable number. You should avoid this stock for now - better opportunities lie elsewhere. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

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