AIG has been treading water for the past six months, holding steady at $83. The stock also fell short of the S&P 500’s 8.8% gain during that period.

Is now the time to buy AIG, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think AIG Will Underperform?

We don't have much confidence in AIG. Here are three reasons you should be careful with AIG and a stock we'd rather own.

1. Declining Net Premiums Earned Reflect Weakness

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

AIG’s net premiums earned has declined by 6.6% annually over the last five years, much worse than the broader insurance industry. A silver lining is that policy underwriting outperformed its other business lines.

2. Recent EPS Growth Below Our Standards

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

AIG’s EPS grew at a weak 1% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 15.2% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.

3. BVPS Growth Demonstrates Strong Asset Foundation

For insurers, book value per share (BVPS) is a vital measure of financial health, representing the total assets available to shareholders after accounting for all liabilities, including policyholder reserves and claims obligations.

Although AIG’s BVPS was flat over the last five years. the good news is that its growth has recently accelerated as BVPS grew at a decent 12.6% annual clip over the past two years (from $58.49 to $74.14 per share).

Final Judgment

AIG falls short of our quality standards. With its shares lagging the market recently, the stock trades at 1.1× forward P/B (or $83 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere. We’d recommend looking at one of our top software and edge computing picks.

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