Stock Analysis

Is Selective Insurance Group's (NASDAQ:SIGI) Share Price Gain Of 111% Well Earned?

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NasdaqGS:SIGI
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The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on the bright side, you can make far more than 100% on a really good stock. One great example is Selective Insurance Group, Inc. (NASDAQ:SIGI) which saw its share price drive 111% higher over five years. Also pleasing for shareholders was the 28% gain in the last three months. But this could be related to the strong market, which is up 15% in the last three months.

See our latest analysis for Selective Insurance Group

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Selective Insurance Group achieved compound earnings per share (EPS) growth of 3.5% per year. This EPS growth is slower than the share price growth of 16% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
NasdaqGS:SIGI Earnings Per Share Growth January 1st 2021

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Selective Insurance Group, it has a TSR of 126% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Selective Insurance Group shareholders are up 4.1% for the year (even including dividends). But that return falls short of the market. On the bright side, the longer term returns (running at about 18% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 2 warning signs we've spotted with Selective Insurance Group .

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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What are the risks and opportunities for Selective Insurance Group?

Selective Insurance Group, Inc., together with its subsidiaries, provides insurance products and services in the United States.

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Rewards

  • Trading at 21.7% below our estimate of its fair value

  • Earnings are forecast to grow 32.65% per year

Risks

  • Significant insider selling over the past 3 months

  • Profit margins (6.6%) are lower than last year (12.8%)

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Selective Insurance Group

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