MGIC Investment trades at $29.09 and has moved in lockstep with the market. Its shares have returned 9.4% over the last six months while the S&P 500 has gained 10.5%.
Is now the time to buy MGIC Investment, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is MGIC Investment Not Exciting?
We're sitting this one out for now. Here are three reasons you should be careful with MTG and a 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 therefore net of what’s ceded to reinsurers as a risk mitigation and transfer strategy.
MGIC Investment’s net premiums earned has declined by 1.1% annually over the last five years, much worse than the broader insurance industry. This shows that policy underwriting underperformed its other business lines.
2. 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 MGIC Investment’s revenue to rise by 2.1%, close to its 2.3% annualized growth for the past two years. This projection doesn't excite us and suggests its newer products and services will not accelerate its top-line performance yet.
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.
MGIC Investment’s EPS grew at a weak 11.7% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 2.3% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
MGIC Investment isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 1.2× forward P/B (or $29.09 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d recommend looking at a top digital advertising platform riding the creator economy.
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