Over the past six months, Globe Life has been a great trade, beating the S&P 500 by 19.4%. Its stock price has climbed to $178.90, representing a healthy 26.2% increase. This run-up might have investors contemplating their next move.
Is there a buying opportunity in Globe Life, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Globe Life Not Exciting?
We’re happy investors have made money, but we’re sitting this one out for now. Here are three reasons why GL doesn’t excite us, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Big picture, insurers generate revenue from three key sources. The first is the core business of underwriting policies. The second source is income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services.
Unfortunately, Globe Life’s 4.8% annualized revenue growth over the last five years was tepid. This was below our standard for the insurance sector.
2. Net Premiums Earned Point to Soft Demand
When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore gross premiums less what’s ceded to reinsurers as a risk mitigation and transfer strategy.
Globe Life’s net premiums earned has grown at a 4.9% annualized rate over the last two years, worse than the broader insurance industry and in line with its total revenue.
3. Growing BVPS Reflects Strong Asset Base
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.
Although Globe Life’s BVPS was flat over the last five years, the good news is that its growth has recently accelerated as BVPS grew at an excellent 20.8% annual clip over the past two years (from $53.56 to $78.12 per share).
Final Judgment
Globe Life isn’t a terrible business, but it doesn’t pass our quality test. With its shares outperforming the market lately, the stock trades at 2.1× forward P/B (or $178.90 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We’re fairly confident there are better investments elsewhere. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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