GOOSEHEAD INSURANCE INC -A (NASDAQ:GSHD) – A Quality Stock with Strong Growth and Profitability

GOOSEHEAD INSURANCE INC -A (NASDAQ:GSHD) was identified as a potential quality investment through our Caviar Cruise stock screener. The company stands out due to its strong historical growth, high profitability, and efficient capital allocation. Below, we examine why GSHD meets the criteria for quality investors.

Key Strengths of GSHD

• Revenue and EBIT Growth: Over the past five years, GSHD has delivered a revenue growth rate of 19.08% annually, while EBIT growth has been even stronger at 34.10%. This indicates improving operational efficiency and pricing power.
• High Return on Invested Capital (ROIC): The company’s ROIC (excluding cash and goodwill) stands at 26.60%, well above the 15% threshold for quality stocks. This suggests effective capital deployment.
• Strong Profit Quality: GSHD converts nearly all of its net income into free cash flow, with a five-year average profit quality of 959.07%, far exceeding the 75% benchmark.
• Manageable Debt: The debt-to-free cash flow ratio is 4.7, meaning the company could theoretically repay its debt in under five years using current cash flows.

Fundamental Analysis Summary

Our fundamental report assigns GSHD an overall score of 6 out of 10, reflecting solid profitability and growth but some concerns around valuation and financial health. Key takeaways:

• Profitability: GSHD ranks highly in its industry, with strong margins and returns. The operating margin of 20.36% outperforms 79.58% of peers.
• Growth: Both past and future growth projections are robust, with expected annual earnings growth of 23.79% and revenue growth of 19.08%.
• Valuation: The stock trades at a premium, with a P/E ratio of 55.86, higher than most industry peers.
• Financial Health: While the Altman-Z score indicates low bankruptcy risk, liquidity metrics like the current ratio (0.26) are weaker.

Why Quality Investors Might Consider GSHD

Quality investing focuses on companies with durable competitive advantages, consistent growth, and efficient capital use. GSHD fits this profile due to its high ROIC, strong cash conversion, and expanding margins. While the valuation is elevated, the company’s growth trajectory and profitability could justify the premium for long-term investors.

For more quality stock ideas, explore our Caviar Cruise screener.

Disclaimer

This is not investing advice. Always conduct your own research before making investment decisions.