Over the past six months, Arthur J. Gallagher’s shares (currently trading at $256.94) have posted a disappointing 16.6% loss, well below the S&P 500’s 10% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Following the drawdown, is now an opportune time to buy AJG? Find out in our full research report, it’s free.
Why Is Arthur J. Gallagher a Good Business?
Founded in 1927 and operating in approximately 130 countries through direct operations and correspondent networks, Arthur J. Gallagher (NYSE: AJG) provides insurance brokerage, reinsurance, consulting, and third-party claims settlement services to businesses and individuals worldwide.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Arthur J. Gallagher grew its sales at an exceptional 14.6% compounded annual growth rate. Its growth beat the average business services company and shows its offerings resonate with customers.
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Arthur J. Gallagher’s EPS grew at an astounding 18.7% compounded annual growth rate over the last five years, higher than its 14.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Arthur J. Gallagher has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 18.6% over the last five years.
Final Judgment
These are just a few reasons Arthur J. Gallagher is a high-quality business worth owning. With the recent decline, the stock trades at 20.1× forward P/E (or $256.94 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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