SelectQuote Inc (NYSE:SLQT) is an online insurance platform that makes the process easier to get health, life, auto, and home policies. The company raised $360 million in its May 2020 initial public offering (IPO), and investors have been on a wild ride since.
Most recently, the company announced a secondary public offering of 10.6 million shares, which has investors wondering is SelectQuote stock a Buy now?
Some analysts view the share offering as a possible sign of even more turbulence ahead.
Insurance is a profitable industry, but it can have trouble when more claims are filed than premiums collected to cover them. Major disasters can cause an avalanche of claims to squeeze loss ratios and profit margins.
But SelectQuote isn’t underwriting policies nor paying claims – it acts as an insurance agency. This protects it from some of those issues traditional insurers face. But it still needs to compete for a paying customer base with a hungry insurance market.
Will SelectQuote’s earn profits for investors or create losses in their portfolios?
SelectQuote Is An Insurance Marketplace
SelectQuote is an Overland Park, Kansas-based insurance marketplace. It partners with major providers like American International Group (NYSE:AIG), Prudential Financial Inc (NYSE:PRU), and Liberty Mutual.
It started pioneering the way consumers shop for term life insurance in 1985 with unbiased price comparisons. From there, the company expanded to offer other policies. Its roster of providers offers the full array of senior health, life, auto, and home insurance policies.
Because it’s not directly underwriting policies, the company is protected from many of the financial risks that insurance companies face. And so long as it maintains its reputation as an unbiased marketplace, the platform can continue to build.
Over two million families use the marketplace, and offering multiple lines of business gives it room to grow in any direction. That has some analysts wondering if SelectQuote is a good investment right now.
Is SelectQuote Stock A Buy?
In Q1 2021, SelectQuote released an additional 10.6 million shares, which dropped its share price from a high of $32.55 below the $25.00 line.
It soon hit bottom and rebounded, although it’s likely to be a rocky ride for investors through 2021.
The company has served over three million policyholders so far and reported $772 million in revenue during the second quarter of its 2021 fiscal year. It’s this growth that has propelled its stock to trend upward in spite of the value dilution from the newly released shares.
From a valuation perspective, SLQT share price has an upside to $33.11 per share based on a discounted cash flow forecast analysis. Price levels below this target price suggest the company is undervalued and has room for further elevation.
Will SelectQuote Stock Fall?
SelectQuote continues to release more shares into the market, which is stunting the share price. The more shares outstanding, the harder it is to grow valuations with its market capitalization.
And the company is competing with new tech-based insurance companies like Lemonade (LMND) that are attempting to disrupt the insurance industry as a whole with innovative technology.
Using artificial intelligence, these companies, like Lemonade, can optimize risk management and boost margins. The technology advantage a company like Lemonade has poses a threat long-term to SelectQuote.
Beyond that, the insurance industry itself could face headwinds from the pandemic. Healthcare costs are going up while patient counts rise. Meanwhile the housing and general loan markets could face a potential cliff when stimulus funds run out.
The company’s profits are growing though, and it recently raised guidance for its full-year 2020 fiscal earnings. Its biggest problem could be increased competition from its rivals.
SelectQuote Marketplace Is One Of Many
Although it has a popular insurance marketplace, SelectQuote isn’t alone. It’s competing with insurance marketplaces including eFinancial, PolicyGenius, and insurers like Lemonade (LMND) reaching directly to customers with policy offerings.
Lemonade in particular has a claim to fame of using artificial intelligence to manage risk and create larger profit margins. This company has a huge marketing buzz that could outshine SelectQuote and render it less useful over time.
SelectQuote needs to spend heavily on digital marketing and app development to ensure it remains competitive. Otherwise, it risks being disrupted with the rest of the insurance industry as these new rivals armed with tech come for their market share.
However, it does have an advantage in that it offers a variety of policy types. This means if it loses market share in one revenue stream, it can easily pivot to another.
Is SelectQuote Stock A Buy? The Bottom Line
SelectQuote is an American insurance marketplace that makes it easier to shop for a broad range of policies. You can find home, health, car, and life insurance on the platform offered from a variety of top-quality insurance providers.
The platform went public in 2020 but had a lackluster start. And it sold more shares in a second offering by 2021. These are possible red flags for more bearish investors, but it shouldn’t fully keep you away.
The company has rising profits, and insurance is a cash-cow business. This positions it well to continue growing through the 2020s. It remains to be seen if its growth trajectory can compare with more buzzy rivals like Lemonade though.
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