Goosehead Insurance $GSHD is an interesting franchise entering into the insurance arena. The company's revenues have been on a rip, increasing by 49% for Q3 on a year over year period. Adjusted EBITDA increased by 102% to $9.3m with 47% more policies. Healthy digital agency.

Agency revenues are good. Renewals are better. Renewal commissions increased by 31% for Q3 2020. This suggests that the vast majority of policies in force stay with the agency. Renewals tend to correlate with fewer losses and a better combined ratio for carriers. Retention: 88%

Unlike carriers, $GSHD also earns a lot of money from franchise revenues. These consist of various fees for using the Goosehead brand and various services. These revenues also increased year over year by 53%, although initial franchise fees dipped.

From these we can infer that while the agencies signed up for Goosehead are writing more premium than last year, the growth of new agencies has slowed. That's logical as long term growth is via agencies growing more than just adding more franchisees.

The company is very liquid and paid dividends in both 2019 and 2020. Given the realities of #covid19, this is a pretty solid indicator of the health of the franchise.

All of this seems pretty good. So why are hedge funds abandoning this stock? The company has a P/E ratio of 473.72 & a forward P/E of 130.42. Earnings per share are $0.26 with an expectation to grow by over 100% in the foreseeable future. Is this a value play?

The company has positive free cash flow, is literally profitable (unlike other darlings - $LMND) and is successfully competing with @GEICO @progressive and @StateFarm. What is fueling this success? Predictive analytics.

$GSHD has a proprietary platform it uses to help agents to figure out which customers mostly likely need insurance. The types of insurance it sells are all personal lines and small biz. The franchise platform provides agency services so the agents can solely focus on selling.

The agency provides over 80 different carriers insurance. This means that the agents are armed with the choices to meet whatever pricing the customer needs. The agency will not touch any underwriting risk.

The company is so cash heavy that it could probably consider forming a #captiveinsurance company to provide an affordable layer for some of the increasingly expensive offerings in order to ensure their agents remain price competitive. Quake, wind, and flood being candidates.

The agency platform apparently takes care of renewals and other standard time-consuming paperwork. If the agents legitimately don't need to do paperwork all day long then the franchises need less labor & can sell more. Binding assistance also provided.

I'm not super interested in starting an insurance agency, but if I were this is the brand I'd leverage. They're underrepresented in rural areas where people get shitty coverage in exchange for higher prices offered by captive agents. This company has room to run.

@Nick_Lamparelli

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