CNA Financial has been treading water for the past six months, recording a small loss of 0.9% while holding steady at $45.72.

Is there a buying opportunity in CNA Financial, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think CNA Financial Will Underperform?

We're sitting this one out for now. Here are three reasons you should be careful with CNA and a stock we'd rather own.

1. Net Premiums Earned Point to Soft Demand

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are:

• Gross premiums - what’s ceded to reinsurers as a risk mitigation and transfer strategy

CNA Financial’s net premiums earned has grown at a 7.2% annualized rate over the last two years, slightly worse than the broader insurance industry.

2. Recent EPS Growth Below Our Standards

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

CNA Financial’s EPS grew at a weak 2.2% compounded annual growth rate over the last two years, lower than its 6.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

3. Substandard BVPS Growth Indicates Limited Asset Expansion

Book value per share (BVPS) serves as a key indicator of an insurer’s financial stability, reflecting a company’s ability to maintain adequate capital levels and meet its long-term obligations to policyholders.

To the detriment of investors, CNA Financial’s BVPS grew at a tepid 8.4% annual clip over the last two years.

Final Judgment

We see the value of companies helping consumers, but in the case of CNA Financial, we’re out. That said, the stock currently trades at 10× forward P/E (or $45.72 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at the Amazon and PayPal of Latin America.

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