# Arch Capital Group Ltd. (ACGL)



## Banalanal (Mar 28, 2011)

Arch Capital. ACGL.

Again, I am looking to improve on quantitative analysis and would benefit from understanding how others evaluate an equity.

What I like about ACGL:

1. I like companies in the insurance sector as the cash margins give them room to grow by investing in other opportunities
2. It writes insurance on a world-wide basis
3. 5 year ROE of 18% average
4. Less than 10% d/e
5. P/b of 1.1
6. P/e of 6.6
7. The company has been repurchasing large amounts of it's stock which I assume is a vote of confidence in the company and an undervalued share price.

It isn't paying a dividend which normally precludes me from an investment but I don't think that is a good enough reason to not purchase an equity if it looks to be a value buy. The stock is trading near its all time high but the earnings figures could make that irrelevant.

It did have exposure to the troubles in New Zealand and Japan, both of which will show up in its 1Q2011 statements which I haven't seen on Morningstar.

Thoughts?


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## hypo (Aug 11, 2010)

A couple things to note...

1.) The stock has 18 analysts covering it, so the price is practically fully accounted for by the efficient market hypothesis. You're not going to do a better job on due diligence than these guys unless you happen to be some sort of genius. The only reason it should interest you is if you're a dividend buyer.

2.) You need to post those stats and ratios in comparison to the industry average, or even better an identical competitor. Stating things like the P/E on its own don't really mean anything because there is no context. 

3.) Net income tripled between '08-09 which seems highly unusual. I'd try and see why.

4.) they've had big big swings in their "other revenue", from -200 to 200 million over the past 4 years. I'd investigate why.

5.) it seems like there was some huge event that happened in 08'-09' or something (maybe bp spill?), all the numbers such as the ones mentioned above go crazy. I'd investigate why

6.) If you look at the insider trading history, since Nov '10 all the transactions have been to exercise option and selling their shares. Something to look into for sure.

I'd try and find out what happened in 08'-'09. The numbers are really messed up then.


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## Banalanal (Mar 28, 2011)

hypo said:


> A couple things to note...
> 
> 1.) The stock has 18 analysts covering it, so the price is practically fully accounted for by the efficient market hypothesis. You're not going to do a better job on due diligence than these guys unless you happen to be some sort of genius. The only reason it should interest you is if you're a dividend buyer.


Thanks for responding. Let me try to understand further.

If the ROE is so high, the P/E so low, the debt low, (and that's both relative to its sector and relative to the market as a whole), how can we believe efficient market hypothesis to be correct here? Would the stock not trade for higher multiples? This seems a contradiction to me.

I think investigating further to the financial statements as you mentioned is necessary.


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## BRS9 (Feb 22, 2011)

Buy


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## Banalanal (Mar 28, 2011)

Anybody else have an evaluation?


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