Radian Group trades at $33.84 per share and has stayed right on track with the overall market, gaining 6.1% over the last six months. At the same time, the S&P 500 has returned 7.1%.
Is now the time to buy Radian Group, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Radian Group Not Exciting?
We're sitting this one out for now. Here are three reasons why you should be careful with RDN and a stock we'd rather own.
1. Declining Net Premiums Earned Reflects Weakness
Markets consistently prioritize net premiums earned growth over investment and fee income, recognizing its superior quality as a core indicator of the company’s underwriting success and market penetration.
Radian Group’s net premiums earned has declined by 3.8% annually over the last four years, much worse than the broader insurance industry.
2. Deteriorating Combined Ratio
Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.
Combined ratio = (costs of underwriting + what an insurer pays out in claims) / net premiums earned. If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations.
Over the last four years, Radian Group’s combined ratio has decreased by 49.7 percentage points, clocking in at 28.5% for the past 12 months. Said differently, the company’s expenses have grown at a slower rate than revenue, which is always a positive sign.
3. EPS Barely Growing
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.
Radian Group’s EPS grew at a weak 4.7% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 2.9% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.
Final Judgment
Radian Group isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 1× forward P/B (or $33.84 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of our top digital advertising picks.
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