Shareholders of Brown & Brown would probably like to forget the past six months even happened. The stock dropped 26.1% and now trades at $79.26. This may have investors wondering how to approach the situation.

Following the drawdown, is now an opportune time to buy BRO? Find out in our full research report, it’s free for active Edge members.

Why Are We Positive On Brown & Brown?

With roots dating back to 1939 and operations spanning 44 U.S. states and 14 countries, Brown & Brown (NYSE: BRO) is an insurance brokerage and risk management firm that markets and sells insurance products across property, casualty, and employee benefits sectors.

1. Organic Growth Indicates Solid Core Business

Investors interested in Insurance Brokers companies should track organic revenue in addition to reported revenue. This metric gives visibility into Brown & Brown’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Brown & Brown’s organic revenue averaged 7.9% year-on-year growth. This performance was solid and shows it can expand steadily without relying on expensive (and risky) acquisitions.

2. Outstanding Long-Term EPS Growth

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Brown & Brown’s EPS grew at an astounding 20.7% compounded annual growth rate over the last five years, higher than its 16.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Brown & Brown has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 23.6% over the last five years.

Final Judgment

These are just a few reasons why Brown & Brown is a cream-of-the-crop business services company. After the recent drawdown, the stock trades at 17.7× forward P/E (or $79.26 per share). Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.

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