Markel Group has had an impressive run over the past six months as its shares have beaten the S&P 500 by 13.5%. The stock now trades at $1,997, marking a 20.3% gain. This run-up might have investors contemplating their next move.
Is there a buying opportunity in Markel Group, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Markel Group Not Exciting?
We’re glad investors have benefited from the price increase, but we're cautious about Markel Group. Here are three reasons why there are better opportunities than MKL and a stock we'd rather own.
1. Net Premiums Earned Points to Soft Demand
Net premiums earned commands greater market attention due to its reliability and consistency, whereas investment and fee income are often seen as more volatile revenue streams that fluctuate with market conditions.
Markel Group’s net premiums earned has grown at a 3.8% annualized rate over the last two years, worse than the broader insurance industry and slower than its total revenue.
2. Projected Revenue Growth Shows Limited Upside
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 Markel Group’s revenue to stall, a deceleration versus its 10.6% annualized growth for the past two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
3. Recent EPS Growth Below Our Standards
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.
Markel Group’s EPS grew at an unimpressive 14.7% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 10.6% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
Markel Group isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 1.4× forward P/B (or $1,997 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at the most dominant software business in the world.
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