Markel Group has had an impressive run over the past six months as its shares have beaten the S&P 500 by 7.4%. The stock now trades at $2,024, marking a 11.7% gain. This run-up might have investors contemplating their next move.
Is now the time to buy Markel Group, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Markel Group Not Exciting?
We’re glad investors have benefited from the price increase, but we're cautious about Markel Group. Here are three reasons why you should be careful with MKL and a stock we'd rather own.
1. Net Premiums Earned Points to Soft Demand
Net premiums earned commands greater market attention due to its reliability and consistency, whereas investment and fee income are often seen as more volatile revenue streams that fluctuate with market conditions.
Markel Group’s net premiums earned has grown at a 3.8% annualized rate over the last two years, worse than the broader insurance industry and slower than its total revenue.
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Markel Group’s revenue to stall, a deceleration versus its 10.6% annualized growth for the past two years. This projection doesn't excite us and implies its products and services will face some demand challenges.
3. 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.
Markel Group’s EPS grew at an unimpressive 14.7% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 10.6% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
Markel Group’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 1.4× forward P/B (or $2,024 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. Let us point you toward the Amazon and PayPal of Latin America.
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