MetLife has had an impressive run over the past six months as its shares have beaten the S&P 500 by 21.8%. The stock now trades at $95.81, marking a 35.4% gain. This run-up might have investors contemplating their next move.
Is there a buying opportunity in MetLife, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think MetLife Will Underperform?
Despite the momentum, we’re sitting this one out for now. Here are three reasons why there are better opportunities than MET, plus one stock we’d rather own.
1. Net Premiums Earned Point to Soft Demand
When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are:
- Gross premiums - what’s ceded to reinsurers as a risk mitigation and transfer strategy
MetLife’s net premiums earned has grown at a 2.7% annualized rate over the last five years, much worse than the broader insurance industry and in line with its total revenue.
2. 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.
MetLife’s weak 3.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
3. Substandard BVPS Growth Indicates Limited Asset Expansion
In the insurance industry, book value per share (BVPS) provides a clear picture of shareholder value, as it represents the total equity backing a company’s insurance operations and growth initiatives.
Disappointingly for investors, MetLife’s BVPS grew at a sluggish 5.4% annual clip over the last two years.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of MetLife, we’ll be cheering from the sidelines. With its shares beating the market recently, the stock trades at 2.2× forward P/B (or $95.81 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward one of our all-time favorite software stocks.
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