Universal Insurance Holdings, Inc. (NYSE:UVE) and United Insurance Holdings Corp. (NASDAQ:UIHC) are the two most active stocks in the Property & Casualty Insurance industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Universal Insurance Holdings, Inc. (UVE) has an EBITDA margin of 17.07%, compared to an EBITDA margin of 5.16% for United Insurance Holdings Corp. (UIHC). This suggests that UVE underlying business is more profitable. UVE’s ROI is 25.70% while UIHC has a ROI of 1.90%. The interpretation is that UVE’s business generates a higher return on investment than UIHC’s.
If there’s one thing investors care more about than earnings, it’s cash flow. UVE’s free cash flow (“FCF”) per share for the trailing twelve months was +1.74. Comparatively, UIHC’s free cash flow per share was +1.36. On a percent-of-sales basis, UVE’s free cash flow was 0.01% while UIHC converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, UVE is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. UVE’s debt-to-equity ratio is 0.00 versus a D/E of 0.10 for UIHC. UIHC is therefore the more solvent of the two companies, and has lower financial risk.
UVE trades at a forward P/E of 6.80, a P/B of 1.94, and a P/S of 1.15, compared to a forward P/E of 8.35, a P/B of 1.27, and a P/S of 1.37 for UIHC. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. UVE is currently priced at a -19.66% to its one-year price target of $29.00. Comparatively, UIHC is -15.81% relative to its price target of $19.17. This suggests that UVE is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.50 for UVE and 2.00 for UIHC, which implies that analysts are more bullish on the outlook for UVE.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. UVE has a beta of 1.81 and UIHC’s beta is 1.58. UIHC’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. UVE has a short ratio of 26.16 compared to a short interest of 10.16 for UIHC. This implies that the market is currently less bearish on the outlook for UIHC.
Universal Insurance Holdings, Inc. (NYSE:UVE) beats United Insurance Holdings Corp. (NASDAQ:UIHC) on a total of 7 of the 12 factors compared between the two stocks. UVE is more profitable, generates a higher return on investment, has higher cash flow per share and has lower financial risk. In terms of valuation, UVE is the cheaper of the two stocks on an earnings and sales basis, UVE is more undervalued relative to its price target. Finally, HCC has better sentiment signals based on short interest.