Kinsale Capital Shares Fall Sharply Today -- Let's Look at the Numbers

Standing out among the Street's worst performers today is Kinsale Capital, a property & casualty insurance company whose shares slumped -16.0% to a price of $380.39, 30.37% below its average analyst target price of $546.33.

The average analyst rating for the stock is hold. KNSL underperformed the S&P 500 index by -17.0% during today's afternoon session, but outpaced it by 17.6% over the last year with a return of 38.7%.

Kinsale Capital Group, Inc., a specialty insurance company, engages in the provision of property and casualty insurance products 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.

Kinsale Capital's trailing 12 month P/E ratio is 28.8, based on its trailing EPS of $13.23. The company has a forward P/E ratio of 21.2 according to its forward EPS of $17.96 -- which is an estimate of what its earnings will look like in the next quarter. As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US finance companies is 12.38, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

To better understand KNSL’s valuation, we can divide its price to earnings ratio by its projected five-year growth rate, which gives us its price to earnings, or PEG ratio. Considering the P/E ratio in the context of growth is important, because many companies that are undervalued in terms of earnings are actually overvalued in terms of growth.

Kinsale Capital’s PEG is 2.02, which indicates that the company is overvalued compared to its growth prospects. Bear in mind that PEG ratios have limits to their relevance, since they are based on future growth estimates that may not turn out as expected.

When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Kinsale Capital was $853.23 Million as of its last annual report. Over the last 4 years, the company's average free cash flow has been $385.63 Million and they've been growing at an average rate of 45.5%. With such strong cash flows, the company can not only re-invest in its business, it can afford to offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in KNSL have received an annualized dividend yield of 0.1% on their capital.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Kinsale capital's P/B ratio is 7.56 -- in other words, the market value of the company exceeds its book value by a factor of more than 7, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.58 as of the first quarter of 2023.

Kinsale Capital is likely fairly valued at today's prices because it has a higher P/E ratio than its sector average, a higher than Average P/B Ratio, and generally positive cash flows with an upwards trend. The stock has mixed growth prospects because of its strong operating margins with a positive growth rate, and an above average PEG ratio. We hope this preliminary analysis will encourage you to do your own research into KNSL's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.