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Why Goosehead Insurance (GSHD) Stock is a Compelling Investment Case

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Polen Capital Management recently released its Q3 2020 Investor Letter, a copy of which you can download here. During the third quarter of 2020, the Polen U.S. SMID Company Growth Composite Portfolio returned 7.11% gross of fees, while the Russell 2500 Growth Index was up 9.37%. You should check out Polen Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Polen Capital highlighted a few stocks and Goosehead Insurance Inc. (NASDAQ:GSHD) is one of them. Goosehead Insurance Inc. (NASDAQ:GSHD) is an insurance company. Year-to-date, Goosehead Insurance Inc. (NASDAQ:GSHD) stock gained 180% and on November 12th it had a closing price of $118.67. Here is what Polen Capital said:

"We started a new position in Goosehead Insurance during the quarter. Goosehead is a personal lines insurance broker with a unique franchise model and centralized customer service. Its business model is radically different than the industry status quo.

Goosehead was designed to address two flaws management identified in the traditional personal lines brokerage model. First, the best brokers quickly became bogged down with back-office requirements as the many clients they acquired needed to be serviced. Second, the most successful personal lines brokers typically had a limited number of carriers whose product they could sell. This meant that even when those carriers were not the best option, brokers had to convince clients they were.

Goosehead addresses the first pain point by offloading nearly all the back-office requirements to a centralized service center with licensed brokers who can generally handle all client needs. This allows Goosehead’s best salespeople to focus solely on building their business without compromising client service. In fact, Goosehead has a Net Promoter Score twice that of the industry average. On the second weakness, Goosehead leads the industry with >80 carriers on its platform. This allows brokers to provide clients with more options and find the best possible solution for their needs. Goosehead is in the early stages of penetrating the personal lines insurance industry, which is estimated to have a total addressable market of $300B. Its franchising model leads to extremely high returns on capital and requires almost zero investment to grow the business. Management is laser-focused on capitalizing on its opportunity, and we expect the company to grow its value more than our mid-teens IRR hurdle for many years to come."

In Q1 2020, the number of bullish hedge fund positions on Goosehead Insurance Inc. (NASDAQ:GSHD) stock increased by about 22% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Goosehead's growth potential. Our calculations showed that Goosehead Insurance Inc. (NASDAQ:GSHD) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website:

Disclosure: None. This article is originally published at Insider Monkey.