Why BRP Isn’t Worth the Money Right Now?

The macroeconomic uncertainties are weighing on investors’ sentiments. In this article, I will examine the various factors affecting the BRP Group, Inc.’s (BRP)  performance and provide insight into why the stock is not worth the money right now.

The current financial market is in distress. The failure of three American banks and the urgent efforts to save others, such as Credit Suisse Group AG and First Republic Bank in Europe, have caused both the stock market and bond yields to plummet.

Additionally, the insurance industry faced tough challenges like limited funding, tighter budgets, and intense competition in 2022. Moreover, inflation is hindering the insurance industry’s growth through higher claims costs and decreased demand.

BHP markets and sells insurance products and services in the United States. It operates through four segments: Middle Market, Specialty, MainStreet, and Medicare.

The company reported mixed financial reports for the fourth quarter. While BRP’s Revenue exceeded analyst estimates by 1.3%, its EPS missed analyst estimates significantly.

Moreover, BRP has declined 15.1% over the past year and 6.8% over the past six months, closing its last trading session at $24.49. Also, the stock has fallen by 14.8% over the past month.

Here is what could shape BRP’s performance in the near term:

Mixed Financials

BRP’s revenues increased 54.6% year-over-year to $246.04 million in its fiscal fourth quarter that ended December 31, 2022.

However, its total operating expenses grew 58.6% from its prior-year quarter to $312.46 million. The company’s operating loss rose 75.4% year-over-year to $66.42 million. Its net loss and loss per share came in at $91.47 million and $0.84, increasing 106.1% and 104.9%, respectively, from the same quarter the prior year.

Premium Valuation

In terms of forward non-GAAP P/E, BRP is currently trading at 20.40x, which is 140% higher than the 8.50x industry average. Its forward EV/Sales multiple of 2.83 is 45.4% higher than the 1.94 industry average, while its forward EV/EBITDA multiple of 13x is 30.2% higher than the industry average of 9.98x.

Also, the stock’s forward Price/Book ratio of 3.23 is 224.8% higher than the industry average of 0.99.

Poor Profitability

BRP’s trailing-12-month gross profit margin of 26.64% is 55.4% lower than the industry average of 59.75%. Its trailing-12-month EBIT and EBITDA margin of 0.36% and 9.16% are 98.4% and 58.7% lower than the respective industry averages of 22.18% and 22.17%.

Additionally, its trailing-12-month negative ROCE and ROTA of 6.87% and 1.21% compared to their respective industry averages of 11.15% and 1.15%.

POWR Ratings Reflect Bleak Prospects   

BRP has an overall F rating, which translates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. BRP has an F grade in Quality, which aligns with its lower-than-industry profit margins.

It also has a D for Stability consistent with its 24-month beta of 1.64. Moreover, BRP’s D grade in Value is justified by its higher than industry valuation.

Among the 102 stocks in the F-rated Financial Services (Enterprise) industry, BRP is ranked #97.

Click here to view BRP ratings for Value, Momentum, Sentiment, and Quality.

Bottom Line

The stock is currently trading below its 50-day and 200-day moving averages of $27.65 and $27.74, indicating a downtrend. The stock looks overvalued at its current prices.

Moreover, amidst the widespread economic uncertainty, the prospects for the insurance industry appear grim.

So, considering the company’s low profitability, premium valuation, and the slump in its price over the past months, the stock might be best avoided.

Stocks to Consider Instead of BRP Group, Inc. (BRP)

Unfortunately, the odds of BRP outperforming in the weeks and months ahead are greatly compromised. However, there are many good stocks in the Financial Services (Enterprise) industry with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) and B-rated (Buy) stocks instead:

Forrester Research, Inc. (FORR)

Everi Holdings Inc. (EVRI)

CPI Card Group Inc. (PMTS).

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BRP shares were unchanged in premarket trading Thursday. Year-to-date, BRP has declined -2.59%, versus a 5.35% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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