SelectQuote, Inc. (NYSE: SLQT) is no large insurer and is, in fact, an insurance agency and not an actual insurance provider. The business is small, and the stock has been pounded since the IPO, but now the bottom is in. More significantly, the bottom is in, and a sustained rally may form over the next quarter or 2. Efforts to improve profitability and boost growth have begun to take traction, and the sell-side is buying the stock.
Insiders have been buying SelectQuote for 2 consecutive quarters. This is noteworthy because there was 0 insider activity for the preceding 6 quarters while share prices hovered near similarly low or lower levels. As it is, insider activity is broad, including 2 directors, the CEO, the COO, and a segment president. Together, they purchased about 0.5% of the market cap with shares near $1.35, bringing total holdings to over 9%.
Institutional activity is also solid in this stock. The institutions own about 50% of the company and have bought it on balance for 5 consecutive quarters. Institutional buying is also broad, with major shareholders like BlackRock (NYSE: BLK) and Geode Capital Management purchasing shares in Q3. Together, the top 3 institutional holders own about 8% of the stock and growing.
Why Is the Sell-Side Buying SelectQuote?
The sell-side is buying SelectQuote because the shares are down about 95% from the IPO price, and improving profitability is at hand. The Q4 results remain mixed, with GAAP losses mounting, but the devil is in the details. The GAAP losses are due entirely to repositioning and growth efforts that more than offset the loss. Income is positive on an adjusted basis and is expected to improve over the next year. The forecast is for a small loss on a per-share basis, but this may be an overly cautious estimate given the top-line growth.
SelectQuote grew revenue by 60% YOY in Q4 on solid momentum in all 4 segments. The Health Services segment led with a gain of 176% compared to last year, offset by a decline in Auto & Home revenue. That decline is misleading because it reflects charges related to shifting policies to a different carrier; the segment grew by 5% on a premium basis. Looking forward, the company expects to grow top-line revenue by 11.5% in 2024, and the analyst expects that pace to continue in F2025, with GAAP profitability returned in the interim.
Analysts Are Holding SelectQuote: They See This Stock Doubling
The analysts' activity in SelectQuote is sparse and mixed, but the takeaway is they are holding the stock. Insidertrades.com is tracking 3 analysts with current ratings with a consensus of Hold with a price target of $2.50. That’s more than 100% above the current price action; even the low price target offers some upside. Assuming the company can continue to gain traction with growth and profitability, the analysts' sentiment should firm even without outperformance in the quarterly reports.
The stock price is down significantly from its highs and could move lower, but it is showing signs of a bottom. The bottoming began in early 2022 with a solid move from below the $1 mark. That move was followed by a consolidation, with the market set up for a bullish swing in momentum. That is marked by the bullish crossover in the stochastic and impending crossovers in the MACD and RSI.
The RSI indicator is especially telling. It fell below 50 during the consolidation, relieving the potential for overbought conditions. Now, the RSI is curving upward again and may fire a double-crossover in which the signal lines fire a bullish signal while crossing back above the mid-point of the range. If that scenario comes to pass, SLQT shares should move back toward the $3 range and may even move higher over the next 4 to 6 quarters.