This hidden gem is smashing the FTSE 100 after doubling profits in a year. Should I buy?

This FTSE 100 stock is rising today after more than doubling its profits before tax in the last year. But is it too expensive for Harvey Jones to buy?

| More on:
artificial intelligence investing algorithms

Image source: Getty Images.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

This under-the-radar stock has smashed the FTSE 100 lately, rising more than 80% over the past three years and it’s climbing today (7 March) too.

The stock in question is Lloyds of London insurer Beazley (LSE: BEZ) and its shares are up another 3.22% this morning after a positive market response to its full-year 2023 results.

The £4.48bn group has reported a 155% rise in profit before tax from $584m in 2022 to a record $1.254bn.

This stock is smashing it

The increase in insurance written premiums wasn’t quite as spectacular, rising a relatively modest 7% to $5.601bn. However, net insurance written premiums jumped an impressive 24% to $4.696bn. Return on equity rose from 19% to 30% year on year.

A “delighted” CEO Adrian Cox pinned its success on “the strength of Beazley’s expertise-led underwriting and claims management”, and marked the occasion with a share buyback programme of up to $325m. 

Cox was also optimistic for the long term, as the “accelerating risk environment” is driving insurance demand.

Beazley is a market leader in business lines including professional indemnity, cyber liability, property, marine, reinsurance, accident, life, political risks and contingency business. It has large exposure to the US, giving it scope for rapid growth.

While this offers diversification, this can also increase volatility, as it’s exposed to risks in all of these markets. In today’s uncertain world, demand will definitely rise, as Cox says, but there will also be some big claims along the way.

Investing risks and rewards

Gross premiums written have climbed steadily for the last five years, including during the pandemic. As with any insurer, Beazley’s profits can be bumpy as they’re vulnerable to huge swings in claims payouts. It posted a $50.4m loss in 2020 due to “severe claims activity” fuelled by Covid.

Yet it has the necessary resilience with a projected year-end Group Solvency II ratio of 218%, and that’s after the share buyback and interim dividend of 14.2p. It’s not a great income stock, with a modest yield of 2.03%, although that’s partly down to its rapid share price growth.

The Beazley share price is up 17.34% in the last month, but that worries me slightly, because if I buy it today, I’m banking on the momentum continuing. Over 12 months, the stock is up 6.96%.

I’ve bought shares before after a strong set of results, only to take an immediate hit by a sudden bout of profit-taking. So I won’t dive in today. A price-to-earnings ratio of 31.62 times earnings also makes me wary.

I’m glad the stock is now on my radar though, and I’ll keep tracking it while I wait for a cheaper entry point. I’d rather buy it after a bad year than a brilliant one.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Black man sat in front of laptop while wearing headphones
Investing Articles

Investing just £10 a day in UK stocks could bag me a passive income stream of £267 a week!

This Fool explains how investing in UK stocks rather than buying a couple of takeaway coffees a day could help…

Read more »

Investing Articles

A cheap stock to consider buying as the FTSE 100 hits all-time highs

Roland Head explains why the FTSE 100 probably isn’t expensive and highlights a cheap dividend share to consider buying today.

Read more »

Investing Articles

If I were retiring tomorrow, I’d snap up these 3 passive income stocks!

Our writer was recently asked which passive income stocks she’d be happy to buy if she were to retire tomorrow.…

Read more »

Investing Articles

As the FTSE 100 hits an all-time high, are the days of cheap shares coming to an end?

The signs suggest that confidence and optimism are finally getting the FTSE 100 back on track, as the index hits…

Read more »

Investing Articles

Which FTSE 100 stocks could benefit after the UK’s premier index reaches all-time highs?

As the FTSE 100 hit all-time highs yesterday, our writer details which stocks could be primed to climb upwards.

Read more »

Investing Articles

Down massively in 2024 so far, is there worse to come for Tesla stock?

Tesla stock has been been stuck in reverse gear. Will the latest earnings announcement see the share price continue to…

Read more »

Young Caucasian woman with pink her studying from her laptop screen
Dividend Shares

These 2 dividend stocks are getting way too cheap

Jon Smith looks at different financial metrics to prove that some dividend stocks are undervalued at the moment and could…

Read more »

Investing Articles

Is the JD Sports share price set to explode?

Christopher Ruane considers why the JD Sports share price has done little over the past five years, even though sales…

Read more »