Wayman Value Investing - New Stock Recommendation - August 2024
A new position is being added to the Wayman portfolio
# # # New Position # # #
Palomar Holdings (PLMR)
Recent Price: 92.54
Market Cap: 2.37B
P/FCF: 17.82
P/E: 24.87
P/S: 5.27
LT Debt/Eq: 0.08
Projected 4yr FCF: 1.15B
Wayman Portfolio Tier: Gather
Palomar Holdings (PLMR) is a specialty property insurance company headquartered in La Jolla, California. Founded in 2014, Palomar focuses on providing catastrophe-exposed property insurance for residential and commercial clients in earthquake, hurricane, and flood-prone areas. The company has carved out a niche in the insurance market by leveraging proprietary data analytics and a technology-driven underwriting process to offer products in markets often underserved by larger insurers.
At first glance, Palomar might not seem like an obvious choice for value investors. The company trades at a price-to-earnings ratio that's higher than the industry average, and its rapid growth over the past few years might set off alarm bells for those wary of hot stocks. However, peeling back the layers reveals a company with significant intrinsic value and a wide moat in a critical, growing market.
Palomar's competitive advantage lies in its ability to price risk more accurately than its competitors, thanks to its sophisticated data analytics and granular approach to underwriting. This has allowed the company to maintain a combined ratio consistently below 100%, indicating profitability in its underwriting activities – a rare feat in the property insurance industry. Moreover, Palomar's focus on niche, catastrophe-exposed markets provides natural barriers to entry and limits competition from larger, more generalist insurers.
The company's financials tell a compelling story of disciplined growth and improving operational efficiency. Palomar has consistently grown its gross written premiums at a double-digit rate while simultaneously expanding its adjusted return on equity. This combination of growth and improving returns on capital is a hallmark of truly exceptional businesses. Furthermore, the company maintains a conservative investment portfolio and a robust reinsurance program, providing a solid foundation for long-term stability and growth.
Looking ahead, Palomar is well-positioned to benefit from several macro trends. The ongoing hardening of the property insurance market provides tailwinds for pricing power. With a manageable float and a scalable technology platform, Palomar has ample room to grow without requiring significant additional capital.
In conclusion, while Palomar may not screen as a traditional value stock, it embodies many of the qualities that discerning value investors seek: a durable competitive advantage, disciplined management, and improving returns on capital. For those willing to look beyond surface-level metrics, Palomar offers an intriguing opportunity to invest in a high-quality business at a reasonable price relative to its long-term potential.
Please keep in mind that while some investors might rely on market catalysts when considering what new positions to take, Wayman considers its style to be “catalyst-free investing.” Our reason for purchasing will always be based on our calculations which show a business is worth far more than where the market is pricing it. - Frank Memcaj, Founder of Wayman Value Investing