Long before the novel coronavirus came to town, small technology company EverQuote (NASDAQ:EVER) was on a winning streak. The company was leveraging digitization tailwinds to grow its online insurance marketplace into a more mainstream platform for consumers to easily get and compare insurance quotes. And EverQuote stock rose more than 600% in 2019 on company growth.
Then the pandemic came to town. And the red-hot EverQuote growth narrative only got hotter.
In the first quarter of 2020, EverQuote reported nearly 80% quote volume growth, 55%-plus revenue growth and over 700 basis points of bottom-line profit margin expansion. The catalyst? According to management, Covid-19 is “accelerating the shift online in insurance.”
Year-to-date, EVER stock is up almost 45%.
In the big picture, the past 16 months of strength in EverQuote stock is simply part one of a much bigger, longer rally in the stock. This company is in the first inning of a huge growth narrative based on the shift toward buying and selling insurance online. Covid-19 has only accelerated and strengthened that growth narrative.
In three to five years, this stock could easily double — meaning EverQuote stock is a strong long-term buy for growth investors.
The Online Insurance Revolution
The world is pivoting online. That trend was already underway prior to Covid-19. Consumers simply like the convenience of being able to do things online that before required them to go on physical errands.
Covid-19 has only accelerated this pivot. With the world in lockdown, consumers are increasingly relying on digital platforms to do everything from shop to entertain themselves.
But in the $150 billion insurance market — where only 19% of ad dollars are spent online versus 45% online ad spending in other major industries like travel — the e-commerce revolution is a few steps behind. There’s a few reasons for this. But the most important of these reasons is that, whereas commerce has Amazon (NASDAQ:AMZN) and travel has Expedia (NASDAQ:EXPE), the insurance industry did not have a large, centralized online marketplace matching buyers and sellers.
Then EverQuote came along.
EverQuote has created that big online insurance marketplace. It’s the biggest online insurance marketplace out there, and it’s growing rapidly, with quote volumes up more than 50% year-over-year in each of the past four quarters.
When it comes to building marketplaces, size matters. That’s because the more buyers you have, the more sellers you attract, and the more sellers you attract, the more buyers you get. It’s a positive feedback loop where size is the fuel. Also of note: EverQuote relies on data-driven algorithms to match insurance buyers with sellers. The more data (size) EverQuote has, the better outcomes those algorithms will produce.
Consequently, EverQuote should able to leverage marketplace network effects to one day turn into the Amazon or Expedia of online insurance shopping.
Huge Long-Term Potential
Amazon is a $1 trillion-plus company. Expedia is a $10 billion company. EverQuote, by comparison, is a $1 billion company.
Sure, you can say that the insurance market is much smaller than the total commerce market, so EverQuote will never be as big as Amazon. That’s true. It won’t be. But with Amazon up at $1 trillion and EverQuote down at $1 billion, there’s still a lot of opportunity for the latter to unlock tremendous value over the next several years as the insurance market moves online.
My modeling on EverQuote is pretty simple. I assume:
- Over 20% quote volume growth per year over the next few years, supported by the secular shift in consumers toward shopping for insurance policies online.
- About 25% annual revenue growth in 2025, supported by increasing digital ad spending in the insurance vertical.
- Significant profit margin expansion, helped by scale and operational efficiencies.
Assuming all that happens, I see EverQuote powering earnings toward $3 per share by 2025. Hyper-growth application software stocks like EverQuote normally trade at 35 times forward earnings. Based on that average multiple, $3 in 2025 earnings per share implies a 2024 price target for EverQuote stock of $105.
That’s more than double today’s price tag.
Bottom Line on EverQuote Stock
EverQuote stock is a long-term winner.
Covid-19 is only accelerating this company’s insurance digitization growth narrative. As the insurance market does increasingly digitize over the next few years, EverQuote will sustain huge volume, revenue, and profit growth. All of that growth will power EVER stock above $100 within the next few years.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.