The Essent Group Ltd. (ESNT) has been on our watch list for a little while now. It’s share price has grown considerably over the last 4 years. In January this year we felt that the stock had risen rapidly so held back, but now after the recent fall in global stocks, the value seems to be a little better.
In terms of growth and profitability:
According to Guru Focus, “during the past 12 months, Essent Group’s average earnings per share (NRI) Growth Rate was 18.70% per year. During the past 3 years, the average earnings per share (NRI) Growth Rate was 32.90% per year”.
It also has a 3 year revenue Growth rate of 21%. Both very strong statistics. Total revenue has increased as stated on 30/12/2019 was £867,567,000 from £719,353,000 as seen on yahoo finance.
Free Cash Flow has however slightly dropped from 2018 to 2019.
An ROE (Return on Equity) of 20.7% is very strong.
In terms of value:
A PE ratio of 8.28 is considered good value. Likewise so is a Price-to-Free-Cash-Flow Ratio of 7.88
We also like to use Benjamin Graham valuation techniques. We sometimes use the formula; Value = EPS x (8.5 + (2 x 10yr compound growth) . This is one of Graham’s earlier formulas and shows a higher valuation of the current price.
Guru Focus has a Graham number calculated, ‘As of today (2020-02-26), the stock price of Essent Group is USD 47.06. Essent Group’s graham number for the quarter that ended in Dec. 2019 was USD 62.11. Therefore, Essent Group’s Price to Graham Number ratio for today is 0.76.’
Guru Focus also has a DCF (Discounted Cash Flow) Calculator which puts Essent Group at a fair value of $60.46
According to Zacks.com ‘Essent Group has a PEG ratio of 0.84 compared to the Financial – Mortgage & Related Services industry’s PEG ratio of 1.45. This ratio essentially compares the P/E to its growth rate, thus, for many, telling a more complete story than just the P/E ratio alone. Conventional wisdom says that a PEG ratio of 1 or less is considered good (at par or undervalued to its growth rate).’
Another quick valuation technique which compares earnings to share price to give a return is EPS/Share Price which is currently 12%
In terms of financial stability:
Debt to EBITDA measures a company’s ability to pay off its debt and at 0.33 this is very healthy.
It has a current ratio of 1.89, at above 1 it shows that it has enough liquid assets to cover its short-term liabilities.
Are there any other concerns?
‘Essent offers private mortgage insurance, also known as mortgage guaranty insurance, MI or private MI, for single-family mortgage loans in the United States, providing private capital to mitigate mortgage credit risk for lenders and investors. This, in turn, allows lenders to make additional mortgage financing available to prospective homeowners.’
In general the company looks stable, Essent is rated A3 by Moody’s, A (Excellent) by A.M. Best, and BBB+ by Standard & Poor’s.1
However we will always have the concern that a repeat of the huge mortgage defaults of 2007/2008 could have a bad effect on this company.
Another point to note is that it hasn’t all been positive over the last decade. In July 2015 the company started a 6 month fall, when it’s price dropped by approximately a third. There have also been dips in 2018. However the stock has always recovered and for now the stats and recent report in our opinion are strong.
Please note: money s&i may not have positions in the shares mentioned. Stats are created by us to the best of our ability and figures are found on what we deem to be reliable information. Everything we publish is thoroughly researched. We present financial and investment information and will on occasion express our opinion on these. The information provided throughout our website is not and cannot ever be intended either as investment, financial, tax, legal advice or otherwise.