After a turbulent year, the stock market is roaring back in 2023. Amid the resurgence, the S&P 500 index has gained 14%. However, one hidden gem that has soared even higher, overcoming last year's challenges, is Goosehead Insurance (GSHD 1.74%).

Since the start of the year, Goosehead's stock has surged 110%. The insurance agency has weathered a stormy period but has made strides toward improved profitability and efficiency. Guided by a management team with a blueprint for rapid expansion, Goosehead is positioned well for stellar growth. Despite the stock's substantial gains this year, it's still down 60% from its all-time high and presents a compelling long-term investment opportunity. Here's why it's not too late to add this growth stock.

Goosehead's franchise-based insurance model has led to stellar growth

Goosehead is a business that connects insurance companies with individuals, helping them find policies to protect themselves from accidents, property damage, or other risks. It has created a proprietary platform to help agents quickly get quotes and connect with prospective customers.

Chief Executive Officer and Chairman Mark Jones heads up Goosehead, which he co-founded in 2003. Jones has experience as a partner and director at Bain & Company, a management consulting firm, where he focused on recruiting. In Goosehead's early years, the company focused on selling insurance from its corporate offices. It then expanded on this success, leveraging its knowledge along with Jones's past to recruit independent agents to sell policies through a franchise-based business model. This franchise model, which started in 2012, has helped Goosehead achieve stellar growth.

In 2015, Goosehead had 125 operating franchises. As of last year, the number of operating franchises had ballooned to more than 1,413 locations, with another 700 franchises in the pipeline. Goosehead attracts agents to its model because of its expertise and online platform, helping them close sales. Thus far, the model has been a great success. Over the past 10 years, Goosehead's total written premiums have grown 43% compounded annually.

Two charts show Goosehead's premium growth over the last decade.

Image source: Goosehead Insurance.

Why Goosehead struggled in 2022

Last year was tough for Goosehead. The stock price peaked at about $181 per share in October 2021 and fell to $34 per share at the end of last year. Although the company's revenue rose 38% last year, its bottom line took a hit because of rising compensation costs and other expenses. That, coupled with a hefty price tag of more than 15 times sales coming into 2022, led to a drastic sell-off for the stock. 

The company took action to improve profitability and efficiency. During the year, it restructured its corporate sales team and culled weaker franchises, which Jones says "should yield meaningful productivity gains over time." Solid results followed in the second quarter, with revenue growth of 31%, while net income improved to $3.6 million. Through the first six months of the year, net income of $7 million represented a rebound from its $3 million loss the prior year. 

Goosehead's blueprint for long-term margin expansion

Goosehead's stock values the company at nearly 7 times sales and 54 times forward earnings, giving it a lofty price tag. However, it sports a high price tag for a good reason. The company has achieved stellar growth and has a blueprint for long-term profit margin expansion.

That's because as successful franchises flourish and grow, they will likely renew their agreement with Goosehead to continue leveraging its platform and corporate support. As thriving franchises renew contracts, Goosehead's royalties increase from 20% to 50% -- providing the agency with solid long-term growth potential from its highest performers.

GSHD PS Ratio Chart

Data source: YCharts

Why Goosehead is an excellent long-term buy

Despite the high valuation, Goosehead stock trades near its lowest valuation since going public and may be an appealing buy for growth-focused investors. Analysts estimate earnings per share (EPS) of $0.42 this year, which they project will jump to $0.95 in 2024 and grow to $1.73 by 2025. This growth rate far outpaces competitors and is why the stock trades at such a premium.

Goosehead has done an excellent job of expanding its insurance agency business. Its franchise-based model has allowed for stellar growth over the past decade and should contribute to widening profit margins during the next decade -- making this financial growth stock a solid buy today despite its big run-up this year.