Investors have been drawn to Progressive (PGR +0.10%) stock lately, in part because the insurer posted some encouraging numbers in its first-quarter earnings report. There's a price to pay for popularity, however.
At the moment, on several valuation metrics, Progressive is more expensive than several well-known peers. Yet, you have to pay a premium for quality, and this applies in Progressive's case.
NYSE: PGR
Key Data Points
An insurer that's been ensuring growth
Insurance companies that offer auto coverage -- a Progressive strength -- rebounded from the stay-at-home pandemic era quite nicely (although much of this has to do with the unpopular rate increases that have been common). However, this is a competitive field, and numerous competitors are vying to provide similar coverage in a market that's far more price-sensitive than brand-loyal. So, any company that can find new ways of generating premiums has an edge over its rivals.
Progressive has done a better job increasing its top line than numerous peers offering automobile lines, including Allstate and Chubb:
PGR Revenue (Annual) data by YCharts.
Marketing has become key for insurers -- again, they're more or less offering the same products -- and Progressive stands out for its quirky and funny TV and online ads. The more sticky a company can be in the minds of consumers, the likelier they'll be to trust its brand.
True to its name
On top of that, Progressive's management has shown a flair for being, well, progressive in its approach to growth. There isn't much room to expand within the auto insurance space, but the recent launch of Cargo Plus -- an expansion of its truck coverage -- shows the company is finding suitable ways to grow.
We should bear in mind, though, that any insurance stock carries certain risks now. For one, consumer backlash over those rate increases has been sharp and likely leaves little room for more bumps. Yet, Progressive is one of the better operators in the space, and in my view, it's worth its relatively pricey valuations.
