Over the last six months, Reinsurance Group of America’s shares have sunk to $196.77, producing a disappointing 12.5% loss - a stark contrast to the S&P 500’s 4.3% gain. This may have investors wondering how to approach the situation.
Is now the time to buy Reinsurance Group of America, 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 Is Reinsurance Group of America Not Exciting?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons why there are better opportunities than RGA and a stock we'd rather own.
1. 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.
Reinsurance Group of America’s EPS grew at a weak 7.9% compounded annual growth rate over the last two years, lower than its 12.7% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
2. Growing BVPS Reflects Strong Asset Base
Book value per share (BVPS) serves as a key indicator of an insurer’s financial stability, reflecting a company’s ability to maintain adequate capital levels and meet its long-term obligations to policyholders.
Although Reinsurance Group of America’s BVPS increased by a meager 2.7% annually over the last five years, the good news is that its growth has recently accelerated as BVPS grew at an exceptional 22.7% annual clip over the past two years (from $114.61 to $172.53 per share).
3. Previous Growth Initiatives Haven’t Impressed
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, Reinsurance Group of America has averaged an ROE of 7.4%, uninspiring for a company operating in a sector where the average shakes out around 12.5%.
Final Judgment
Reinsurance Group of America isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 1.1× forward P/B (or $196.77 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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