Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of James River Group Holdings Are Plummeting Today

By Bram Berkowitz - May 6, 2021 at 12:16PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company recently announced a poor quarter of earnings and commenced a new public offering of common shares.

What happened

Shares of the insurance company James River Group Holdings (JRVR 0.11%) traded more than 31% lower approaching noon EDT today, after the company announced earnings results and commenced a public offering.

So what

James River reported a net loss in the first quarter of more than $103 million, a drop of 178% from the first quarter of 2020. Total revenue of nearly $183 million jumped significantly from the first quarter of last year, but missed on analysts' estimates for revenue.

"During the quarter, we continued to experience higher than expected reported losses in our large commercial auto account in runoff," CEO Frank D'Orazio said in a statement. "In response, we meaningfully changed our actuarial methodology, resulting in a material strengthening of reserves. We believe this overhang has been eliminated, and that we are now fully able to focus on our prospective business and what continues to be a historically strong E&S [excess and surplus lines] marketplace."

Line with arrow moving downward.

Image source: Getty Images.

The company also announced yesterday that it is planning to raise $175 million through a proposed offering of common shares. Proposed offerings often send stocks downward because printing new shares dilutes existing shareholders, splitting the same pot of earnings short term over a larger investor base.

Now what

The combination of poor earnings and a new offering of shares is a recipe for a sell-off. Even though D'Orazio said the problems are in the past, investors probably don't have a ton of confidence in the company right now.

This may also mean that they don't have confidence in management taking new capital from the raise and putting it to good use to increase profits down the line.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

James River Group Holdings, Ltd. Stock Quote
James River Group Holdings, Ltd.
$26.44 (0.11%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.