RenaissanceRe’s 16.8% return over the past six months has outpaced the S&P 500 by 5.5%, and its stock price has climbed to $283.68 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in RenaissanceRe, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is RenaissanceRe Not Exciting?
Despite the momentum, 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 3.8%, a decrease from its 23.9% annualized growth for the past two years. This projection is underwhelming and implies its products and services will face some demand challenges.
3. 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 2.8% compounded annual growth rate over the last two years, lower than its 23.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
RenaissanceRe’s business quality ultimately falls short of our standards. With its shares beating the market recently, the stock trades at 1.2× forward P/B (or $283.68 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
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