American Financial Group trades at $137.11 and has moved in lockstep with the market. Its shares have returned 11.6% over the last six months while the S&P 500 has gained 13.7%.

Is now the time to buy American Financial Group, 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 for active Edge members.

Why Is American Financial Group Not Exciting?

We're sitting this one out for now. Here are three reasons you should be careful with AFG and a stock we'd rather own.

1. Net Premiums Earned Point to Soft Demand

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are:

• Gross premiums - what’s ceded to reinsurers as a risk mitigation and transfer strategy

American Financial Group’s net premiums earned has grown at a 4.8% annualized rate over the last five years, worse than the broader insurance industry and slower than its total revenue.

2. EPS Barely Growing

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

American Financial Group’s EPS grew at an unimpressive 5.1% compounded annual growth rate over the last five years, lower than its 7.8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

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, American Financial Group’s BVPS grew at a tepid 9.5% annual clip over the last two years.

Final Judgment

American Financial Group isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 2.4× forward P/B (or $137.11 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. We’d recommend looking at the most dominant software business in the world.

Stocks We Like More Than American Financial Group

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