Argo's Top-Line Growth Is Exciting, But ROEs Remain Lackluster

Argo Group (ARGO) has been a frustrating insurance stock to follow for some time, as the company's strong niche underwriting capabilities and meaningful earnings potential have been held back by persistently high expenses. Reinvesting in the business has started to pay off in terms of premium growth, but solid book value growth and ROE improvement have remained elusive.

Even so, Argo has been a strong performer this year, with a roughly 15% year-to-date gain that leaves comps like AIG (AIG), Alleghany (Y), Chubb (CB), Hartford (HIG), and W.R. Berkley (WRB) well in the dust. While stronger than expected first quarter results helped fuel the surge, and I'm bullish on the prospects for technology investments to yield more premium growth, I'm not yet sold on the company's ability to drop that growth down through to the bottom line, and so I'm not seeing a significant amount of undervaluation in the shares now.

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Argo's Top-Line Growth Is Exciting, But ROEs Remain Lackluster