The National Security Group Inc (NASDAQ:NSEC), a US$39.35M small-cap, operates in the insurance industry, which has recently experienced the impact of a softening commercial lines market and a low-yield investment climate. Financial services analysts are forecasting for the entire industry, a strong double-digit growth of 12.60% in the upcoming year , and a single-digit 7.07% growth over the next couple of years. This rate is below the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether National Security Group is lagging or leading in the industry. View our latest analysis for National Security Group
What’s the catalyst for National Security Group’s sector growth?
Amid challenges from regulatory disruption, increasing consumer expectations and sluggish sales, insurers will increasingly consider technology integration to drive growth and efficiency. Over the past year, the industry saw growth of 6.15%, though still underperforming the wider US stock market. National Security Group lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its insurance peers. As the company trails the rest of the industry in terms of growth, National Security Group may also be a cheaper stock relative to its peers.
Is National Security Group and the sector relatively cheap?
The insurance sector’s PE is currently hovering around 16.82x, in-line with the US stock market PE of 18.86x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 9.31% on equities compared to the market’s 10.40%. Since National Security Group’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge National Security Group’s value is to assume the stock should be relatively in-line with its industry.
National Security Group has been an insurance industry laggard in the past year. If National Security Group has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its financial peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at National Security Group’s fundamentals in order to build a holistic investment thesis.
- 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- 2. Historical Track Record: What has NSEC’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of National Security Group? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.