Is ESNT a “Saul” type of stock?

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A few posters have asked about ESNT and in a recent thread their 1st quarter results, Randy (CMF_BigECat) wrote:

I went online and looked at quarterly earnings growth and it is ridiculously consistent and strong growth. The combined ratio for an insurance company in the mid-thirties is ridiculously good as well……Something seems wrong here. Too good to be true.

My first thought was, Huh? The numbers are too good? I replied that I don’t think anything is wrong, it is simply a well-run home mortgage and Re-insurance company with top-notch officers taking advantage of a good market. And I really do believe that to be true, at least as far as I can tell from the public record – and that is all I have to go on since I am not an insider.

But it did get me thinking about whether ESNT should be considered in the same category as some of the other “Saul” stocks.

From the Knowledge Data Base:

I look for companies that are growing fast
Just take a look at the numbers - Check

have recurring income
Houses change hands - PMI is required. There’s also income from the float investment returns. Check

insider ownership
Check – Mark Casale owns 2.6M shares

some kind of moat
Well having a true “moat” is a challenge for any insurance company, I guess. Their moat is simply doing a better job than the competition. This one is open to debate I suppose.

a reasonable PE
Sitting at 14 right now. Very reasonable for a company with earnings growing at 38%! Check

etc
Check. By every metric I can find they are performing extremely well.

OK, mortgage insurance is not the sexiest industry in the world, and has no cutting edge technology. But I think that is a strong point. No one can sweep in with a new product that replaces PMI. The things to look out for, like slowing new insurance growth, dropping IIF, rising expenses, a competitive glut, etc., should be evident from the numbers, and shouldn’t happen all at once.

So, as Randy asked, “What am I missing?”

DT

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Thanks for due diligence.

Not sure if it’s Saul’s list or not but few points I try to look at are:

  1. How big is this market? Do they have long runway for growth or will they suddenlt stall for lack of headroom.
  2. Are there big players in the industry that can easily squeeze these guys if they start hurting big guys.

Understand these two questions counter each other.

  1. Is there any industry specific situation that can change dynamics suddenly - e.g. mortgage rates or housing market situation.
    This is ofcourse more to avoid any obvious short term impact.

I am very interested in this company and will try to learn some more.

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