EMC Insurance Group Inc (NASDAQ:EMCI), a US$614.79m small-cap, is an insurance company operating in an industry, which has recently experienced the impact of a softening commercial lines market, a problematic personal lines segment, and a low-yield investment climate. Agility has become the new normal as insurance companies are confronted by a marketplace that is continuously changing drastically. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 11.76% in the upcoming year , and an enormous growth of 30.24% over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. Is the insurance industry an attractive sector-play right now? Below, I will examine the sector growth prospects, as well as evaluate whether EMC Insurance Group is lagging or leading its competitors in the industry.
What’s the catalyst for EMC Insurance Group’s sector growth?
Amid challenges from regulatory disruption, increasing consumer expectations and sluggish sales, insurers will increasingly consider technology integration to drive growth and efficiency. In the past year, the industry delivered growth of 4.83%, though still underperforming the wider US stock market. EMC Insurance Group lags the pack with its negative growth rate of -15.63% over the past year, which indicates the company has been growing at a slower pace than its insurance peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with EMC Insurance Group poised to deliver a -21.73% growth compared to the industry average growth rate of 11.76%. This growth is a median of profitable companies of 24 Insurance companies in US including Reinsurance Group of America, Torchmark and Horace Mann Educators. As an industry laggard, EMC Insurance Group may be a cheaper stock relative to its peers.
Is EMC Insurance Group and the sector relatively cheap?
Insurance companies are typically trading at a PE of 13.98x, in-line with the US stock market PE of 18.32x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 9.42% on equities compared to the market’s 11.16%. On the stock-level, EMC Insurance Group is trading at a PE ratio of 18.71x, which is relatively in-line with the average insurance stock. In terms of returns, EMC Insurance Group generated 5.57% in the past year, which is 3.85% below the insurance sector.
If EMC Insurance Group has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is an insurance industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the financial sector. However, before you make a decision on the stock, I suggest you look at EMC Insurance Group’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has EMCI’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of EMC Insurance Group? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.