ESNT

Investment Analysis Clubs Saul’s Investing Discussions
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I identified The Essent Group (ESNT) using a screening tool looking for stocks with relatively low PEGs combined with high earnings and revenue growth. After a little further research I started building a position. ESNT is a private insurance company that offers residential mortgage insurance and reinsurance. It has only been public for seven quarters, but they seem to be performing very well with steadily improving numbers. Using kevinh68’s screening spreadsheet, I got a 1YPEG of only 0.14, revenue growth rate of 67%, and it was identified as a “candidate” stock.

Amazing to me is how effective they have been at lowering their Combined Ratio since they went public, an important insurance company parameter as explained here:

http://www.fool.com/investing/general/2015/02/23/insurance-i…

So… a combined ratio of less than 100% is a healthy number for insurance companies. Check out these values for the last few years (1st three quarters in 2013 are pre-IPO):

2013 73.8 58.7 54.1 57.0
2014 54.4 48.9 42.9 42.3
2015 39.3 37.6

Remember, smaller is better. I like this trend. Now I am certainly no expert when it comes to insurance companies, but coupled with the impressive earnings and revenue growth, this story seems very compelling, even though the stock price has fallen over 15% since July.

Here is an article published on Seeking Alpha just before the IPO in October 2013 for more background info:

http://seekingalpha.com/article/1777822-essent-group-ipo-is-…

Thoughts?

DT

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Hi DT,

Those are impressive combined ratio numbers. In fact, I’ve rarely seen an insurance company that can consistently maintain a CR under 100%, let alone show numbers that low. A Fool favorite and high quality insurer, Markel (MKL) usually achieves strong CR numbers in the 80-90% range. Given that your company provides mortgage insurance, I suspect they have paid far fewer claims as the housing market and employment have improved and lending standards have become more stringent. I’d be curious to know how they perform in a challenging time like 2008-09 as it might give a sense of how conservative their underwriting is.

Ron

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I like the company they keep, I noticed that they do their highest volume of business with Wells Fargo, Wells is one of the strongest banks in the country. I am interested in learning more about this company.

thanks for sharing this DT.

Flygal

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