3 Reasons AXS is Risky and 1 Stock to Buy Instead

AXIS Capital has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 8.1% to $96.10 per share while the index has gained 3.7%.

Is there a buying opportunity in AXIS Capital, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is AXIS Capital Not Exciting?

We're cautious about AXIS Capital. Here are three reasons why we avoid AXS and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Insurance companies generate revenue three ways. The first is the core insurance business itself, represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected but not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from policy administration, annuities, and other value-added services.

Over the last five years, AXIS Capital grew its revenue at a sluggish 3.8% compounded annual growth rate. This fell short of our benchmark for the insurance sector.

2. Net Premiums Earned Points to Soft Demand

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.

AXIS Capital’s net premiums earned has grown at a 2.5% annualized rate over the last two years, much worse than the broader insurance industry and slower than its total revenue.

3. Previous Growth Initiatives Haven’t Impressed

Return on Equity, or ROE, ties everything together and is a vital metric. It tells us how much profit the insurer generates for each dollar of shareholder equity entrusted to management. Over a long period, insurers with higher ROEs tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, AXIS Capital has averaged an ROE of 9.5%, uninspiring for a company operating in a sector where the average shakes out around 12.5%.

Final Judgment

AXIS Capital isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 1.3× forward P/B (or $96.10 per share). While this valuation is reasonable, 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. Let us point you toward an all-weather company that owns household favorite Taco Bell.

Stocks We Would Buy Instead of AXIS Capital

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