Over the past six months, Chubb has been a great trade, beating the S&P 500 by 11.6%. Its stock price has climbed to $357.81, representing a healthy 17.8% increase. This performance may have investors wondering how to approach the situation.
Is now the time to buy Chubb, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Chubb Not Exciting?
We’re happy investors have made money, but we don’t have much confidence in Chubb. Here are three reasons why there are better opportunities than CB, plus one stock we’d rather own.
1. Net Premiums Earned Point to Soft Demand
When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore net of what’s ceded to reinsurers as a risk mitigation and transfer strategy.
Chubb’s net premiums earned has grown at a 6.8% annualized rate over the last two years, slightly worse than the broader insurance industry and in line with its total revenue.
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Chubb’s revenue to stall, a deceleration versus its 7.2% annualized growth for the past two years. This projection doesn’t excite us and suggests its products and services will see some demand headwinds.
3. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Chubb’s EPS grew at an unimpressive 16.9% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 7.2% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
Chubb isn’t a terrible business, but it doesn’t pass our quality test. With its shares topping the market in recent months, the stock trades at 1.7× forward P/B (or $357.81 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We’re fairly confident there are better stocks to buy right now. We’d recommend looking at the Amazon and PayPal of Latin America.
Stocks We Like More Than Chubb
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