Over the last six months, Assured Guaranty’s shares have sunk to $76.52, producing a disappointing 16.5% loss - a stark contrast to the S&P 500’s 8.4% gain. This might have investors contemplating their next move.

Is now the time to buy Assured Guaranty, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Assured Guaranty Will Underperform?

Even though the stock has become cheaper, we’re cautious about Assured Guaranty. Here are three reasons why AGO doesn’t excite us, plus one stock we’d rather own.

1. Declining Net Premiums Earned Reflect Weakness

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

Assured Guaranty’s net premiums earned has declined by 5.2% annually over the last five years, much worse than the broader insurance industry. This shows that policy underwriting underperformed its other business lines.

2. Revenue Projections Show Stormy Skies Ahead

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 Assured Guaranty’s revenue to drop by 24%, a decrease from its 12.3% annualized declines for the past two years. This projection doesn’t excite us and indicates its products and services will face some demand challenges.

3. EPS Took a Dip Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Sadly for Assured Guaranty, its EPS declined by more than its revenue over the last two years, dropping 15.4%. This tells us the company struggled to adjust to shrinking demand.

Final Judgment

Assured Guaranty falls short of our quality standards. After the recent drawdown, the stock trades at 0.6× forward P/B (or $76.52 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. Let us point you toward the Amazon and PayPal of Latin America.

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