Over the past six months, RLI’s shares (currently trading at $70.72) have posted a disappointing 5.9% loss, well below the S&P 500’s 7.6% gain. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Following the pullback, is now an opportune time to buy RLI? Find out in our full research report, it’s free.

Why Does RLI Stock Spark Debate?

Founded in 1965 and named after its original focus on "replacement lens insurance" for contact lens wearers, RLI (NYSE: RLI) is a specialty insurance company that underwrites property, casualty, and surety products through wholesale brokers, independent agents, and carrier partnerships.

Two Positive Attributes:

1. Net Premiums Earned Skyrockets, Fueling Growth Opportunities

Net premiums earned commands greater market attention due to its reliability and consistency, whereas investment and fee income are often seen as more volatile revenue streams that fluctuate with market conditions.

RLI’s net premiums earned has grown at a 15% annualized rate over the last two years, much better than the broader insurance industry and faster than its total revenue.

2. Stellar ROE Showcases Lucrative Growth Opportunities

Return on Equity, or ROE, ties everything together and is a vital metric. It tells us how much profit the insurer generates for each dollar of shareholder equity entrusted to management. Over a long period, insurers with higher ROEs tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, RLI has averaged an ROE of 28.2%, exceptional for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This shows RLI has a strong competitive moat.

One Reason to be Careful:

Recent EPS Growth Below Our Standards

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

RLI’s EPS grew at a weak 5.1% compounded annual growth rate over the last two years, lower than its 8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

RLI’s positive characteristics outweigh the negatives. After the recent drawdown, the stock trades at 4× forward P/B (or $70.72 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.

Stocks We Like Even More Than RLI

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