Rarely has Progressive (PGR +0.85%) stock looked cheap. It is one of the best-run auto insurers in the U.S., with shares usually trading at a premium compared to most insurers. But after sliding about 21% from their all-time highs, shares finally resemble a bargain -- at least on the surface.
So, is this pullback a rare chance to buy a high-quality insurer at a more reasonable valuation? Or is the stock's slide a sign of more trouble ahead?
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Why the business looks strong
It's not like Progressive's recent business growth has been unimpressive. Through the first nine months of 2025, the company reported net premiums written of $63.7 billion -- up 13% year over year. And its net premiums earned rose 17% to $60.6 billion.
For those who don't follow insurance stocks closely, premiums are simply the amount of money customers pay the company for coverage. The key difference in net premiums written and net premiums earned is timing. Net premiums written are closer to the time of sale, reflecting the amount of new and renewed coverage Progressive put on the books during the period. Net premiums earned, on the other hand, are what Progressive actually counts as revenue during the period because it has already provided that coverage.
So, when both net premiums written and net premiums earned are rising at double-digit rates, it usually means the insurer is bringing in more business and then successfully turning it into recognized revenue -- often because it's adding customers, charging higher average prices, or both.
Another factor reflecting Progressive's impressive growth is its policy growth. At the end of Q3, the company reported total policies in force of 38.1 million -- up 12% year over year.
But how's the company doing net of insurance claims and operating expenses? To find out, investors can examine Progressive's combined ratio, which compares the amount an insurer pays out in claims and operating costs to the premiums it collects. A combined ratio below 100, therefore, means the insurer made an underwriting profit on its insurance business.
Progressive remains a class act on this front, with a combined ratio of 89.5% in Q3.
A bargain price?
But what really makes Progressive attractive is its valuation. Shares currently trade at about 13.4 times forward earnings (forward earnings refers to analysts' consensus estimate for Progressive's earnings over the next 12 months). Even more, it trades at 3.6 times book value. This is notably down from a multiple that approached 7 in early 2025.
But is Progressive stock really a bargain at this price? Not necessarily. There have been periods years ago in which the company regularly traded at even lower price-to-book values. So, even though Progressive's valuation looks low in the context of the last few years, it doesn't look cheap in the context of the stock's entire history.
Of course, the company solidified its leadership position in U.S. auto insurance recently. So, it probably deserves to trade higher valuation multiples than it used to. Still, I don't think the stock is cheap at its current price. Instead, it's probably closer to fairly valued.
NYSE: PGR
Key Data Points
Numerous risks
The stock's recent weakness comes as investors were reminded that the company operates in a regulated industry. Management recently recorded a $950 million accrual related to a Florida statute requiring insurers to return profits exceeding a specified limit to policyholders. This added 4.6 percentage points to its third-quarter combined ratio.
Additionally, Progressive is susceptible to the broader cycles of the auto insurance industry, which can swing from a hard market (characterized by price increases and strong profits) to a soft market (characterized by increasing competition, as well as challenged pricing and profits). And after years of being in a hard market, some investors may worry that the market is entering a softening.
Finally, there is a longer-term question that is harder to handicap: what happens to auto insurance if driving becomes dramatically safer due to advanced driver assistance systems and, eventually, more autonomous driving? Fewer accidents would likely result in fewer claims over time, which could reduce the total pool of profit dollars available to insurers. This is not a near-term issue, but it is a real uncertainty some investors might be beginning to discount.
What makes Progressive stock a buy
There is one thing, however, that we haven't mentioned yet that, when combined with other factors like strong growth and a conservative valuation, makes the difference for me and ultimately makes me think shares are worth buying now: Its dividend policy, which includes an occasional special dividend. For example, on top of Progressive's $0.10 quarterly dividend, the company paid out a special dividend of $13.50 last week. It also paid a $4.50 one in 2025 and $0.75 special dividend in 2024.
The reason I like Progressive's special dividend policy is that every meaningful payment to shareholders takes some risk off of the table. And given the uncertainty in the auto industry, this is an especially valuable perk for shareholders. Of course, there's no way to know when or how much Progressive's next special dividend will be, but since the company has made a habit of paying them, it wouldn't be surprising to see another special dividend in 2027.
Overall, Progressive's pullback makes the stock more interesting. The company is still growing quickly, its underwriting results have been strong, and the valuation now looks more forgiving than it did near its all-time high. But the discount may also flag some real risks, including the possibility of the auto insurance market turning soft or autonomous driving technology eventually disrupting the space.
In short, I think the stock looks like a good bet over the long haul from its current price. But given the risks, investors interested in buying the stock should keep the position small.
