The stock of Safety Insurance Group (NAS:SAFT, 30-year Financials) gives every indication of being fairly valued, 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 $84.69 per share and the market cap of $1.3 billion, Safety Insurance Group stock shows every sign of being fairly valued. GF Value for Safety Insurance Group is shown in the chart below.
Because Safety Insurance Group is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 0.2% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Safety Insurance Group has a cash-to-debt ratio of 0.88, which ranks worse than 69% of the companies in Insurance industry. Based on this, GuruFocus ranks Safety Insurance Group's financial strength as 6 out of 10, suggesting fair balance sheet. 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 $840.4 million and earnings of $9.16 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:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Safety Insurance Group's 3-year average revenue growth rate is worse than 68% of the companies in Insurance industry. Safety Insurance Group's 3-year average EBITDA growth rate 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 7.33, while its WACC came in at 3.52. The historical ROIC vs WACC comparison of Safety Insurance Group is shown below:
Overall, Safety Insurance Group (NAS:SAFT, 30-year Financials) stock is believed to be fairly valued. 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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