First American Financial has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 8.1% to $72.79 per share while the index has gained 11.3%.
Is there a buying opportunity in First American Financial, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is First American Financial Not Exciting?
We’re sitting this one out for now. Here are three reasons we avoid FAF, plus one stock we’d rather own.
1. Declining Net Premiums Earned Reflect Weakness
Net premiums earned are net of what’s paid to reinsurers (insurance for insurance companies), which are used by insurers to protect themselves from large losses.
First American Financial’s net premiums earned has declined by 1.9% annually over the last five years, much worse than the broader insurance industry and in line with its total revenue.
2. EPS Growth Has Stalled
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
First American Financial’s EPS was flat over the last five years, just like its revenue. This performance was underwhelming across the board.
3. Substandard BVPS Growth Indicates Limited Asset Expansion
For insurers, book value per share (BVPS) is a vital measure of financial health, representing the total assets available to shareholders after accounting for all liabilities, including policyholder reserves and claims obligations.
To the detriment of investors, First American Financial’s BVPS grew at a tepid 8.6% annual clip over the last two years.
Final Judgment
First American Financial’s business quality ultimately falls short of our standards. That said, the stock currently trades at 1.2× forward P/B (or $72.79 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Would Buy Instead of First American Financial
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
