We came across a bullish thesis on Kinsale Capital Group, Inc. (KNSL) on Substack by Kyler Johnson. In this article, we will summarize the bulls’ thesis on KNSL. Kinsale Capital Group, Inc. (KNSL)’s share was trading at $469.45 as of Nov 19th. KNSL’s trailing and forward P/E were 26.78 and 24.94 respectively according to Yahoo Finance.
A close-up of a hand signing a property casualty insurance product contract.
Kinsale Capital stands out as a player in the excess and surplus (E&S) insurance market, focusing on high-risk businesses such as construction, bars, amusement parks, and commercial transportation. Its niche strategy targets small to medium-sized enterprises, allowing the company to write higher premiums with minimal competition. This focus has driven remarkable growth, reflected in its stellar stock performance over the past eight years. Despite the industry’s cyclical nature and expectations of a near-term slowdown, Kinsale’s long-term growth trajectory remains promising, underpinned by a highly profitable model and substantial market opportunities.
The E&S market has entered a positive phase, according to AM Best, driven by increased demand due to declining capacity in traditional insurance lines and strong underwriting results. While the industry may experience a normalization period in the coming years, its long-term growth potential, estimated at around 7% annually, remains intact. Kinsale, with less than 2% market share in 2022, has significant room for expansion within this growing market. Its industry-leading low cost of float and exceptional combined ratio, consistently outperforming peers, provide a durable competitive advantage. These metrics showcase Kinsale’s ability to generate profits during favorable conditions and weather downturns more effectively than competitors.
The company’s cost of float, a critical metric in the insurance business, underscores its operational efficiency. Over the past eight years, Kinsale has effectively generated returns on the funds it borrows from policyholders, a testament to its disciplined approach. Recent increases in interest rates have further enhanced these returns, positioning Kinsale to capitalize on higher yields. Although the company has not yet faced a major industry downturn, its conservative loss reserves and low-cost structure suggest resilience against future challenges.
Kinsale’s growth prospects remain robust, with assumptions of a 12% annual book value growth over the next three years, accelerating to 20% annually thereafter. By 2034, this trajectory could yield a market cap of $37.45 billion and a share price of $1,608, representing a 240% return and a compound annual growth rate (CAGR) of 12.9%. This projection assumes a modest price-to-book ratio of 5x, reflecting Kinsale’s profitability and economic moat while maintaining conservatism.
In an industry characterized by stability and predictability, Kinsale offers a compelling investment case as a high-quality company with superior fundamentals. Its ability to consistently outperform the market and generate strong returns positions it as a cornerstone investment for long-term portfolios, aligning with the wisdom of buying wonderful companies at fair prices.
Kinsale Capital Group, Inc. (KNSL) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held KNSL at the end of the third quarter which was 28 in the previous quarter. While we acknowledge the risk and potential of KNSL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KNSL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.