Over the past six months, RLI’s stock price fell to $54.37. Shareholders have lost 16.4% of their capital, which is disappointing considering the S&P 500 has climbed by 8.4%. This may have investors wondering how to approach the situation.
Is now the time to buy RLI, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is RLI Not Exciting?
Even though the stock has become cheaper, we don’t have much confidence in RLI. Here are three reasons you should be careful with RLI, plus one stock we’d rather own.
2. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
RLI’s EPS grew at an unimpressive 15% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 10.4% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
3. Substandard BVPS Growth Indicates Limited Asset Expansion
Book value per share (BVPS) serves as a key indicator of an insurer’s financial stability, reflecting a company’s ability to maintain adequate capital levels and meet its long-term obligations to policyholders.
To the detriment of investors, RLI’s BVPS grew at a tepid 8.4% annual clip over the last two years.
Final Judgment
RLI isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 2.8× forward P/B (or $54.37 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
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