The stock of Safety Insurance Group (NAS:SAFT, 30-year Financials) shows every sign of being modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $81.11 per share and the market cap of $1.2 billion, Safety Insurance Group stock is believed to be modestly undervalued. GF Value for Safety Insurance Group is shown in the chart below.
Because Safety Insurance Group is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 0.2% over the past five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Safety Insurance Group has a cash-to-debt ratio of 0.57, which is worse than 78% of the companies in Insurance industry. GuruFocus ranks the overall financial strength of Safety Insurance Group at 6 out of 10, which indicates that the financial strength of Safety Insurance Group is fair. This is the debt and cash of Safety Insurance Group over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Safety Insurance Group has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $875.6 million and earnings of $11.71 a share. Its operating margin is 0.00%, which ranks in the bottom 10% of the companies in Insurance industry. Overall, the profitability of Safety Insurance Group is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Safety Insurance Group over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Safety Insurance Group is 0.2%, which ranks worse than 67% of the companies in Insurance industry. The 3-year average EBITDA growth is 25.8%, which ranks better than 86% of the companies in Insurance industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Safety Insurance Group's ROIC was 9.33, while its WACC came in at 3.32. The historical ROIC vs WACC comparison of Safety Insurance Group is shown below:
To conclude, Safety Insurance Group (NAS:SAFT, 30-year Financials) stock shows every sign of being modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 86% of the companies in Insurance industry. To learn more about Safety Insurance Group stock, you can check out its 30-year Financials here.
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