What happened
Goosehead Insurance (GSHD 0.27%) was surging on Thursday, as it was up as much as 20.3% during morning trading. As of 2:50 p.m. ET, the stock price was up 15.1%. The stock is currently trading at around $44 per share, up roughly 30% year to date (YTD).
It outperformed the major indexes on Thursday, as the S&P 500 was up 18 points (0.5%), the Dow Jones Industrial Average gained 57 points (0.2%), and the Nasdaq Composite climbed 68 points (0.6%) as of 2:50 p.m. ET.
So what
Goosehead Insurance, based in Westlake, Texas, is a personal lines property and casualty insurance agency that has some 1,400 franchises across the country. On Wednesday afternoon, the company posted robust revenue and earnings gains in the fourth quarter, which sent the stock price spiking on Thursday.
Revenue was up 43% in the quarter to $57.4 million, while net income was up 195% in the quarter to $2.6 million, or $0.02 per share.
Total written premiums in the fourth quarter were up 44% year over year to $585 million, due in large part to higher rates. But also, policies in force grew 27% year over year to approximately 1.3 million, while the number of operating franchises grew 18% to 1,413 compared to the fourth quarter of 2021.
In addition, premiums from its corporate office grew 11% year over year, despite a 37% reduction in sales staff. The company plans to add corporate sales staff back in 2023 to optimize growth as well as create opportunities for corporate agents to turn into franchises.
Now what
In the earnings report, the company released its outlook for 2023, which calls for total written premiums placed to grow 28% to 34% to somewhere between $2.83 billion and $2.96 billion. Revenue is projected to increase 23% to 28% to a range between $258 million and $267 million. Further, they expect adjusted interest, taxes, depreciation, and amortization (EBITDA) margin to grow from the 18% it was for full year 2022.
On the fourth-quarter earnings call, chairman and CEO Mark Jones was bullish on the company's growth prospects, saying:
Our expectation is over the medium term, the next three to five years, we can grow premiums in the range of 30% annually and achieve EBITDA margin in the range of 30% over that time period. Over the long term, we expect a normalized EBITDA margin for this business is north of 40%.
This company has been growing rapidly and looks to be executing on its strategy to boost productivity and grow its franchises. It's way overvalued right now but might be worth watching over the next few quarters to see if it can maintain its growth.
