Essent Group (ESNT): Buy, Sell, or Hold Post Q1 Earnings?

Since January 2025, Essent Group has been in a holding pattern, posting a small loss of 3.7% while floating around $56.07. The stock also fell short of the S&P 500’s 5.4% gain during that period.

Is there a buying opportunity in Essent Group, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Essent Group Not Exciting?

We're cautious about Essent Group. Here are three reasons why there are better opportunities than ESNT and a stock we'd rather own.

1. Net Premiums Earned Points to Soft Demand

Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.

Essent Group’s net premiums earned has grown at a 4.2% annualized rate over the last five years, worse than the broader insurance industry and slower than its total revenue.

2. Deteriorating Pre-tax Profit Margin

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

This is because insurers are balance sheet businesses, where assets and liabilities define the core economics. This means that interest income and expense should be factored into the definition of profit but taxes - which are largely out of a company’s control - should not.

Over the last four years, Essent Group’s pre-tax profit margin has risen by 17.7 percentage points, clocking in at 67.2% for the past 12 months. Said differently, the company’s expenses have grown at a slower rate than revenue, which is always a positive sign.

3. EPS Barely Growing

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Essent Group’s EPS grew at a weak 1.9% compounded annual growth rate over the last five years, lower than its 7.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

Essent Group isn’t a terrible business, but it doesn’t pass our quality test. With its shares lagging the market recently, the stock trades at 0.9× forward P/B (or $56.07 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

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