Additional Thoughts on Goosehead Insurance (GSHD) After Reporting
Shares of Goosehead are trading down for the second day in a row since reporting. The likely culprit behind the decline is that revenue was only up 32% to $21.17 million, which is a bit ($400,000) shy of expectations. In my view focusing too much a small shortfall in revenue means losing sight of the big picture, which I believe is still incredibly attractive.
Written premiums, which are an indication of where the business is going, were up 44% and management increased guidance for written premium growth for the full year to $715 million to $730 million. That’s an increase of $15 million on the low end and $5 million on the high end. That’s good.
Also, it’s relevant that two-thirds of this premium growth is coming from the Franchise Channel, where revenue is more loaded to renewal years (50% commissions) than first year (20% commissions).
On the conference call, management gave some insights into business development initiatives that should keep Goosehead moving forward. Among these are an integrated comparative rating platform that has gone live in 44 states and will begin to release info on products beyond home and auto, including flood. Management also talked about the coaching program in which the best Corporate salespeople will coach new Franchise salespeople to get them up and running as quickly and productively as possible. This is another example of how the Corporate Channel works as a think tank and testing ground for ideas and technologies that can be rolled out company-wide and make a difference.
Goosehead is also now using an Artificial Intelligence solution for client retention and has 100% of all mortgage activity in the U.S. feeding into its platform. It’s also collecting data on roughly 50% of new home purchases from relator data feeds (80%) in some states and will grow this over time. In short, it continues to keep its foot on the gas in terms of creating a robust platform that puts the right information in front of the best salespeople at the best time, then giving them the tools to go out and sell insurance policies.
I think the stock’s weakness isn’t cause for concern at this point and am keeping at Buy. GSHD went on a run in May and June and has been moving sideways in a 12-point range since peaking at around 51.5 in early July. Provided the stock stays above the 40 level that trend should continue, and set the stock up for another run once this quarter has been digested. Look for a GSHD to begin to recover after three or so days of weak trading action. BUY.