Friday, November 8, 2013

HCI: This Stock Is Up +90% YTD, So Why Should You Avoid It?

The following is a small-cap-insight column, on a company with a market cap of less than $500 million, published by Seeking Alpha. 

The HCI Group is a Florida based P&C insurer that has witnessed tremendous growth but long term investors should stay away due to a lack of clear long term growth strategy, poor capital allocation, questionable related party transactions, and insider selling.  

Fortune Magazine has recently released its list of 100 fastest-growing public companies, which is based on the top and bottom line growth as well as the stock performance of the U.S. listed firms. A small Florida based insurer HCI Group (HCI), previously called Homeowners Choice, was able to secure the #13 spot on that list. The company has also joined the S&P Small Cap 600 Index on Friday, in the Property and Casualty Insurance sector, replacing Maidenform Brands (MFB) which is being removed. So far this year, HCI Group's shares have been up an impressive +90% and have caught the attention of Jim Cramer, who thinks that you should be buying this stock. However, I believe that HCI Group is not an attractive option for those looking for a long term investment opportunity.

In this article, I will present an avoid case for this growing casualty and property insurer.

The Company

The HCI Group is a holding company which operates through four divisions engaged in four different business activities. The Homeowners Choice Insurance division is the primary business of the group from where it gets almost all of its revenues and income. The division operates through the Florida-licensed insurance company called Homeowners Choice Property & Casualty Insurance. Through this unit, the company provides its core property and casualty insurance services to its customers.

The Claddaugh Casualty Insurance Company is its wholly owned reinsurance subsidiary which participates in Homeowners Choice's reinsurance program through … read full article at Seeking Alpha