This hidden gem is smashing the FTSE 100 after doubling profits in a year. Should I buy?

This FTSE 100 stock is rising today after more than doubling its profits before tax in the last year. But is it too expensive for Harvey Jones to buy?

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This under-the-radar stock has smashed the FTSE 100 lately, rising more than 80% over the past three years and it’s climbing today (7 March) too.

The stock in question is Lloyds of London insurer Beazley (LSE: BEZ) and its shares are up another 3.22% this morning after a positive market response to its full-year 2023 results.

The £4.48bn group has reported a 155% rise in profit before tax from $584m in 2022 to a record $1.254bn.

This stock is smashing it

The increase in insurance written premiums wasn’t quite as spectacular, rising a relatively modest 7% to $5.601bn. However, net insurance written premiums jumped an impressive 24% to $4.696bn. Return on equity rose from 19% to 30% year on year.

A “delighted” CEO Adrian Cox pinned its success on “the strength of Beazley’s expertise-led underwriting and claims management”, and marked the occasion with a share buyback programme of up to $325m. 

Cox was also optimistic for the long term, as the “accelerating risk environment” is driving insurance demand.

Beazley is a market leader in business lines including professional indemnity, cyber liability, property, marine, reinsurance, accident, life, political risks and contingency business. It has large exposure to the US, giving it scope for rapid growth.

While this offers diversification, this can also increase volatility, as it’s exposed to risks in all of these markets. In today’s uncertain world, demand will definitely rise, as Cox says, but there will also be some big claims along the way.

Investing risks and rewards

Gross premiums written have climbed steadily for the last five years, including during the pandemic. As with any insurer, Beazley’s profits can be bumpy as they’re vulnerable to huge swings in claims payouts. It posted a $50.4m loss in 2020 due to “severe claims activity” fuelled by Covid.

Yet it has the necessary resilience with a projected year-end Group Solvency II ratio of 218%, and that’s after the share buyback and interim dividend of 14.2p. It’s not a great income stock, with a modest yield of 2.03%, although that’s partly down to its rapid share price growth.

The Beazley share price is up 17.34% in the last month, but that worries me slightly, because if I buy it today, I’m banking on the momentum continuing. Over 12 months, the stock is up 6.96%.

I’ve bought shares before after a strong set of results, only to take an immediate hit by a sudden bout of profit-taking. So I won’t dive in today. A price-to-earnings ratio of 31.62 times earnings also makes me wary.

I’m glad the stock is now on my radar though, and I’ll keep tracking it while I wait for a cheaper entry point. I’d rather buy it after a bad year than a brilliant one.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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