Property & Casualty Insurance company Selective Insurance is standing out today, surging to $103.32 and marking a 3.4% change. In comparison the S&P 500 moved only -1.0%.
SIGI currently sits within range of its analyst target price of $100.33, which implies that its price may remain stable for the near future. Indeed, the average analayst rating for the stock is hold. Over the last year, Selective Insurance shares have outperformed the S&P 500 by 26.0%, with a price change of 24.8%.
Selective Insurance Group, Inc., together with its subsidiaries, provides insurance products and services in the United States. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.
Selective Insurance's trailing 12 month P/E ratio is 29.2, based on its trailing EPS of $3.54. The company has a forward P/E ratio of 13.8 according to its forward EPS of $7.46 -- which is an estimate of what its earnings will look like in the next quarter.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the finance sector has an average P/E ratio of 14.34, and the average for the S&P 500 is 15.97.
We can take the price to earnings analysis one step further by dividing the P/E ratio by the company’s projected five-year growth rate, which gives us its Price to Earnings Growth, or PEG ratio. This ratio is important because it allows us to identify companies that have a low price to earnings ratio because of low growth expectations, or conversely, companies with high P/E ratios because growth is expected to take off.
Selective Insurance's PEG ratio of 1.16 indicates that its P/E ratio is fair compared to its projected earnings growth. In other words, the company’s valuation accurately reflects its estimated growth potential. The caveat, however, is that these growth estimates could turn out to be inaccurate.
Selective Insurance's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 802,409 | -26,019 | 776,390 | 3.62 |
| 2021-12-31 | 771,422 | -22,163 | 749,259 | 40.84 |
| 2020-12-31 | 554,045 | -22,064 | 531,981 | 19.14 |
| 2019-12-31 | 477,495 | -30,986 | 446,509 | n/a |
- Average free cash flow: $626.03 Million
- Average free cash flown growth rate: 14.8 %
- Coefficient of variability (lower numbers indicating more stability): 25.9 %
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in SIGI have received an annualized dividend yield of 1.1% on their capital.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.
Selective Insurance's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 2, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.57 as of the first quarter of 2023.
With an inflated P/E ratio, an average P/B ratio, and a pattern of improving cash flows with an upwards trend, we can conclude that Selective Insurance is probably fairly valued at current prices. The stock presents poor growth indicators because of its decent net margins with a negative growth trend, and an inflated PEG ratio.
