Even during a down period for the markets, RenaissanceRe has gone against the grain, climbing to $300.37. Its shares have yielded a 12.8% return over the last six months, beating the S&P 500 by 15.1%. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy RenaissanceRe, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is RenaissanceRe Not Exciting?
We’re happy investors have made money, but we don't have much confidence in RenaissanceRe. Here are three reasons we avoid RNR and a stock we'd rather own.
1. Revenue Projections Show Stormy Skies Ahead
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 RenaissanceRe’s revenue to drop by 12.2%, a decrease from its 18.6% annualized growth for the past two years. This projection doesn't excite us and implies its products and services will face some demand challenges.
2. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
RenaissanceRe’s EPS grew at a weak 3.6% compounded annual growth rate over the last two years, lower than its 18.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
RenaissanceRe isn’t a terrible business, but it doesn’t pass our quality test. With its shares outperforming the market lately, the stock trades at 1.1× forward P/B (or $300.37 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
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