RLI (RLI): Assessing Valuation After a 23% Year-to-Date Share Price Decline

RLI (RLI) has quietly slipped this year, with the stock down about 23% year to date even as its long term track record and underwriting discipline remain intact. This creates an interesting setup for patient investors.

See our latest analysis for RLI.

The 6.8% 1 month share price return suggests some buyers are stepping back in after a weak start to the year, even though the year to date share price return is still firmly negative and the 1 year total shareholder return trails its solid 3 and 5 year records.

If this kind of reset in a quality insurer has your attention, it could be a good moment to broaden your watchlist and uncover fast growing stocks with high insider ownership.

With shares still lagging their long term record but trading only modestly below analyst and intrinsic value estimates, is RLI now quietly undervalued, or is the market already pricing in its future growth?

Most Popular Narrative: 5.4% Undervalued

With RLI last closing at $62.65 against a narrative fair value of $66.25, the story frames today’s weakness as a modest mispricing, not a broken thesis.

The analysts have a consensus price target of $74.333 for RLI based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $87.0, and the most bearish reporting a price target of just $59.0.

Read the complete narrative.

Curious how a business with slowing headline growth still earns a premium style valuation? The secret sits in the margin path and the earnings multiple they are willing to underwrite. Want to see which assumptions have to hold for that to add up? Read on to unpack the full narrative behind this fair value.

Result: Fair Value of $66.25 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, this hinges on RLI containing catastrophe losses and proving that its technology and acquisition spending can deliver enough growth to offset margin pressure.

Find out about the key risks to this RLI narrative.

Another View: Rich on Earnings Multiples

While the narrative fair value suggests modest undervaluation, earnings based multiples tell a tougher story. RLI trades on a P E of 16.3 times versus 13.1 times for the US insurance industry, 10.5 times for peers, and a 9.8 times fair ratio, which leaves little margin for disappointment if growth stays muted.

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own RLI Narrative

If you are not entirely convinced by this perspective, or simply prefer to dig into the numbers yourself, you can build a custom view in minutes: Do it your way.

A great starting point for your RLI research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

Looking for more investment ideas?

Before you move on, you may want to scan focused stock ideas that match your strategy, instead of waiting for the market to surprise you.

• Look for potential bargains by targeting these 919 undervalued stocks based on cash flows that the market may not have fully priced in yet.
• Explore opportunities in technology by considering these 25 AI penny stocks that use artificial intelligence to compete with traditional players.
• Support your income-focused approach by reviewing these 14 dividend stocks with yields > 3% that aim to provide consistent cash returns in a range of market conditions.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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