Over the past six months, RLI’s stock price fell to $61.58. Shareholders have lost 7.3% of their capital, which is disappointing considering the S&P 500 has climbed by 6.6%. This might have investors contemplating their next move.
Following the pullback, is now the time to buy RLI? Find out in our full research report, it’s free.
Why Does RLI Stock Spark Debate?
Founded in 1965 and named after its original focus on "replacement lens insurance" for contact lens wearers, RLI (NYSE: RLI) is a specialty insurance company that underwrites property, casualty, and surety products through wholesale brokers, independent agents, and carrier partnerships.
Two Positive Attributes:
1. Net Premiums Earned Skyrocket, Fueling Growth Opportunities
Net premiums earned are net of what’s paid to reinsurers (insurance for insurance companies), which are used by insurers to protect themselves from large losses.
RLI’s net premiums earned has grown at a 13.3% annualized rate over the last five years, better than the broader insurance industry and in line with its total revenue.
2. Stellar ROE Showcases Lucrative Growth Opportunities
Return on equity, or ROE, represents the ultimate measure of an insurer's effectiveness, quantifying how well it transforms shareholder investments into profits. Over the long term, insurance companies with robust ROE metrics typically deliver superior shareholder returns through a balanced approach to capital management.
Over the last five years, RLI has averaged an ROE of 27.9%, exceptional for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This shows RLI has a strong competitive moat.
One Reason to be Careful:
Projected Revenue Growth Is Slim
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 RLI’s revenue to rise by 2.1%, a deceleration versus its 12% annualized growth for the past two years. This projection doesn't excite us and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
Final Judgment
RLI’s positive characteristics outweigh the negatives. After the recent drawdown, the stock trades at 3.1× forward P/B (or $61.58 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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