Kinsale Capital Group Inc (NASDAQ:KNSL), a US$1.29b 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 18.6% in the upcoming year , and a robust short-term growth of 27.3% over the next couple of years. However, this rate came in below the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether Kinsale Capital Group is lagging or leading in the industry.
What’s the catalyst for Kinsale Capital Group’s sector growth?
Amid challenges from regulatory disruption and sluggish sales, insurers will increasingly consider technology integration to drive growth and efficiency. Over the past year, the industry saw growth in the teens, though still underperforming the wider US stock market. Kinsale Capital Group lags the pack with its lower growth rate of 3.6% over the past year, which indicates the company has been growing at a slower pace than its insurance peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 59.2% in the upcoming year. This future growth may make Kinsale Capital Group a more expensive stock relative to its peers.
Is Kinsale Capital Group and the sector relatively cheap?
The insurance industry is trading at a PE ratio of 17.27x, relatively similar to the rest of the US stock market PE of 19.86x. 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 9.1% on equities compared to the market’s 10.6%. On the stock-level, Kinsale Capital Group is trading at a higher PE ratio of 46.45x, making it more expensive than the average insurance stock. In terms of returns, Kinsale Capital Group generated 11.1% in the past year, which is 2.0% over the insurance sector.
Kinsale Capital Group’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If Kinsale Capital Group has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other insurance companies. However, before you make a decision on the stock, I suggest you look at Kinsale Capital Group’s fundamentals in order to build a holistic investment thesis.
- 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.
- Historical Track Record: What has KNSL’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.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Kinsale Capital 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.