Back in early May, I wrote that the Covid-19 pandemic was a gamer-changer for EverQuote (NASDAQ:EVER), and that, thanks to the pandemic, EVER stock was one of the best consumer stocks to buy right now.
My logic was simple.
Covid-19 has permanently accelerated the adoption of e-commerce in all sectors. Consequently, the retail markets with low e-commerce penetration before the pandemic look poised to grow rapidly. One such market is insurance.
Thus, coming out of the pandemic, it is quite likely that a huge, centralized, digital platform wh will enable consumers to buy insurance online will emerge. This platform will become the Amazon (NASDAQ:AMZN) of insurance.
EverQuote looks well-positioned to be that company.
At first, Wall Street agreed. From early May to late June, EVER stock rose from under $40 to over $60.
Then, the stock reversed course. Over the past few weeks, its shares have plunged to $47.50.
For the same reasons that EVER stock was worth buying back in early May, this recent weakness of EVER stock is a buying opportunity.
EverQuote Is a Mini-Amazon in the Making
EverQuote appears to be on a path towards turning into the Amazon of the online insurance market by 2025.
In the $150 billion insurance market, only 19% of ad dollars are spent online versus 45% in other major industries like travel. But by shutting down stores and making e-commerce the only option for transactions, the Covid-19 pandemic forced all retail sectors to get on the same page,
As a consequence, the Covid-19 pandemic accelerated e-commerce adoption everywhere, but particularly in under-penetrated markets like insurance shopping.
Over the next several years, insurance shopping will migrate online, just as apparel shopping and shopping for hotels and flights have moved to the internet.
In the apparel and travel markets, this online migration yielded huge, centralized online marketplaces like Amazon and Expedia (NASDAQ:EXPE). The online migration of insurance shopping will do the same.
EverQuote — the biggest and fastest growing online insurance marketplace out there — looks poised to become that huge, centralized online marketplace for insurance shopping.
That’s because when it comes to building marketplaces, size matters.
The more buyers a website has, the more sellers it attracts. The more sellers it attracts, the more buyers it gets. It’s a positive feedback loop in which size is the fuel.
Even further, EverQuote relies on data-driven algorithms to match insurance buyers with sellers. The more data EverQuote has, the better outcomes those algorithms will produce, leading to more buyers. Consequently, a positive feedback loop is created.
EverQuote should able to leverage its current market-leading size and network effects to one day turn into the Amazon or the Expedia of insurance.
EVER Stock Is Undervalued
EverQuote has plunged into undervalued territory on this recent sell-off.
EverQuote is a very small, nascent company on the verge of disrupting a $150 billion market. Accordingly, this company should grow rapidly over the next several years.
My long-term growth assumptions for the company include:
- Over 20% quote volume growth per year over the next few years, supported by the non-cyclical shift of consumers to buying insurance policies online.
- About 25% annual revenue growth in 2025, supported by increasing digital ad revenue.
- Significant profit margin expansion, helped by the company’s growth and operational efficiencies.
Assuming all that happens, I think EverQuote’s earnings can approach $3 per share by 2025. Hyper-growth application software stocks like EverQuote normally trade at 35 times their forward earnings. Based on that multiple and EPS of $3 in 2025, my 2024 price target for EverQuote stock is $105.
After discounting back by 10% per year, I arrive at a 2020 price target for EVER stock of $70.
Meanwhile, the average price target of Wall Street analysts for EVER stock is around $63.
Thus, both Wall Street and I see EVER stock as undervalued at this point.
The Bottom Line
EverQuote has a visible opportunity to turn into the Amazon of the insurance industry over the next several years. This opportunity is not fully reflected in the price of EVER stock today.
As a result, I’d take advantage of the stock’s recent weakness by buying it. The shares will likely rebound back towards $60+ levels soon.
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 was long AMZN.