The incredibly long run of stability in capital markets has come to an end. No longer, as Ray Dalio points out, can investors make easy money betting on the stock market going up.
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Free Most Attractive Stocks Pick: Primerica Inc (PRI)
Primerica Inc (PRI: $249/share) has grown revenue and net operating profit after tax (NOPAT) by 9% and 18% compounded annually since 2014, respectively. Primerica’s NOPAT margin increased from 14% in 2014 to 30% in 2024 while its invested capital turns rose from 0.9 to 1.0 over the same time. Rising NOPAT margins and invested capital turns drive Primerica’s return on invested capital (ROIC) from 11% in 2014 to 30% in 2024.
Figure 1: Primerica’s Revenue and NOPAT Since 2014
Sources: New Constructs, LLC and company filings
PRI Is Undervalued
At its current price of $249/share, PRI has a price-to-economic book value (PEBV) ratio of 0.7. This ratio means the market expects Primerica’s NOPAT to permanently decline by 30% from 2024 levels. This expectation seems overly pessimistic for a company that has grown NOPAT by 18% compounded annually over the last decade and 20% compounded annually over the past five years.
Even if Primerica’s NOPAT margin falls to 20% (below 2024 NOPAT margin of 30% and equal to five-year average margin) and the company grows revenue by just 5% (below ten-year compound annual growth rate of 9%) compounded annually through 2034, the stock would be worth $309/share today – a 24% upside. In this scenario, Primerica’s NOPAT would grow just 1% compounded annually through 2034. Contact us for the math behind this reverse DCF scenario.
Should Primerica grow profits more in line with historical levels, the stock has even more upside.
Critical Details Found in Financial Filings by Our Robo-Analyst Technology
Below are specifics on the adjustments we made based on Robo-Analyst findings in Primerica’s 10-K:
Income Statement: we made under $600 million in adjustments, with a net effect of removing over $400 million in non-operating expense. Professional members can see all adjustments made to Primerica’s income statement on the GAAP Reconciliation tab on the Ratings page on our website.
Balance Sheet: we made just under $1 billion in adjustments to calculate invested capital with a net increase of under $200 million. One of the most notable adjustments was for other comprehensive income. Professional members can see all adjustments made to Primerica’s balance sheet on the GAAP Reconciliation tab on the Ratings page on our website.
Valuation: we made just under $100 million in adjustments, all of which decreased shareholder value. The most notable adjustment was for total debt. Professional members can see all adjustments to Primerica’s valuation on the GAAP Reconciliation tab on the Ratings page on our website.
This article was originally published on April 11, 2025.
Disclosure: David Trainer, Kyle Guske II, and Hakan Salt receive no compensation to write about any specific stock, style, or theme.
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