Reviewing the list of companies that were at a new 52 week high and the ones that had hit a fresh 52 week low last week, I was struck by just how many of the companies in the 52 week high list were financial/banking companies and from the energy sector. Similarly, a large number of companies in the 52 week low list were either biotech companies or from the technology sector. Pretty much every company in the top 5 purchases list this week are from the technology or healthcare sector and some of them have seen their stocks drop anywhere from 61% to 77% during the last year. The sector rotation we discussed in our 2022 outlook article on Seeking Alpha appears to be in full swing and accelerated in the first week of 2022.
I am not a big fan of buying companies that are seeing a significant decline in their stock price and prefer not to average down on positions, unless the decision to average into the position was made a priori. Insiders know a lot about their own companies and what lies ahead but are sometimes myopic in their view and tend to miss the big picture. This could very well be the case with some of the insiders in the list of top purchases below but there were a couple that really stood out.
Dave Blundin graduated with a degree in Computer Science from MIT in 1988 and had worked on neural networks in the AI lab in MIT. This was at a time when machine learning and AI were backwaters of computer science since we didn’t quite have the computing power or large swaths of data to unlock the power of machine learning. The situation had not changed much by the late 1990’s when I took my first AI course in grad school. Mr. Blundin used his knowledge of technology to become a serial entrepreneur co-founding 23 companies including 5 that achieved $100+ million valuations. EverQuote (EVER) is one of these companies and it functions as an online insurance broker connecting consumers that are seeking auto, homeowners, renters, life or health insurance with insurance companies. The company’s revenue is concentrated in the auto insurance segment with that vertical representing more than 80% of the company’s fiscal 2020 revenue. The company lists 19 out of the top 20 auto insurance companies in its marketplace and Progressive Insurance (PGR) represents nearly 22% of its revenue.
The company’s key competitors are SelectQuote (SLQT) and GoHealth (GOCO). SelectQuote like EverQuote, focuses on multiple verticals while GoHealth limits itself to health insurance with a specific focus on Medicare Advantage plans. All three companies have seen insider buying in recent months and all three have been hit hard as investors shifted their attention from top line growth to bottom line profitability. I am unfortunately a shareholder of GoHealth and it is the worst performing stock in our model portfolio. Thankfully other positions in the portfolio that have more than doubled or tripled helped offset the impact of GoHealth’s performance.
I put together a table comparing all three companies using Seeking Alpha’s nifty peer comparison tool. As you can see below, EverQuote is not growing as rapidly as SelectQuote or GoHealth but it also does not have any net debt unlike its competitors and is the cheapest of the lot on an EV/Sales metric. Whether EverQuote attempts to appease the street by throttling some of its growth in favor of profitability remains to be seen. Its forward growth guidance of 21% was disappointing to investors and one of the reasons for the recent weakness in the stock. I am intrigued by the company and will add it my watchlist.