Goosehead Insurance Looks To Big-$ Investors As A Best Near-Term Finance Sector Buy

Feb. 18, 2022 3:19 AM ETGoosehead Insurance, Inc (GSHD)1 Comment2 Likes
Peter F. Way, CFA profile picture
Peter F. Way, CFA


  • This is an evaluation of likely coming stock prices, not an appraisal of GSHD’s product line or management’s competitive abilities. They’re already evaluated by big-$ investment analysts and portfolio managers.
  • The buys they urge as volume “block trades” cause Market-Makers to put firm capital temporarily at risk, balancing shares supply with demand. And to hedge-protect the risks created.
  • What is paid for that protection, as well as the way it is done, defines the likely price-change limits for GSHD seen by MM buyers and hedge-offering sellers.
  • "Likely" is the keyword in uncertain-future forecasts, where profit-margin capture and stock-price increases are a combination of corporate managerial skills and current market circumstances.
  • Accounting records show prior management skills, and market-arbitrage records show prior and current market price expectations. All encourage direct comparison of related-competitors’ prospects for coming stock prices.

Business on Wall Street in Manhattan

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Our Investment Thesis

Is expressed in the above bullet-points, where odds for, and size of near-term capital gains are put on a comparable basis with alternative investment candidates.

The dominance of Goosehead Insurance, Inc. (NASDAQ:GSHD) in following the outcome of that analysis compared to investment-comparable alternatives makes reading the rest of this article worth your time and effort if you are interested in rates of near-term capital gains. Gains which are likely to be multiples of what market-index averages regularly offer.

Description of Principal Investment Subject

"Goosehead Insurance, Inc. operates as a holding company for Goosehead Financial, LLC that provides personal lines insurance agency services in the United States. The company operates in two segments, Corporate Channel and Franchise Channel. It offers homeowner's, automotive, dwelling property, flood, wind, earthquake, excess liability or umbrella, motorcycle, recreational vehicle, general liability, property, and life insurance products and services. As of December 31, 2020, the company had 1,468 total franchises. Goosehead Insurance, Inc. was founded in 2003 and is headquartered in Westlake, Texas."

source: Yahoo Finance

Street Analysts growth forecasts

Yahoo Finance

Alternative Investment Competitor Rewards and Risks

Figure 1

MM hedging implied price rewards & risks

Used with permission

Upside price rewards are from the behavioral analysis (of what to do right, not of errors) by Market-Makers [MMs] as they protect their at-risk capital from possible damaging future price moves. Their potential reward forecasts are measured by the green horizontal scale.

The risk dimension is of actual price draw-downs likely at their most extreme point while being held in previous pursuit of upside rewards similar to the ones currently being seen. They are measured on the red vertical scale.

Both scales are of percent change from zero to 25%. Any stock or ETF whose present risk exposure exceeds its reward prospect will be above the dotted diagonal line.

Best reward-to-risk tradeoffs are to be found at the frontier of alternatives down and to the right. As a market-index "norm" currently, the S&P 500 Index ETF (SPY) is at location [3]. The current "frontier" trade-off of Risk vs. Reward extends from Y at [8] to SPY at [9] to AON at [1] and to HCI at [3]. Our present primary interest is in GSHD at location [4].

Is the added reward of GSHD worth the added risk compared to SPY or to HCI at [3]? A fuller description of investing considerations should add to investors' decisions of the suitability and credibility of the available investment alternatives.

Additional value perspective information

Figure 2 presents some of those considerations, drawn from outcomes of prior MM forecasts having the same up-to-down earlier expectation proportions as those of today.

Figure 2

detailed comparative data

used with permission

The advantage of determining Market-Maker forecasts for coming stock prices is that they offer many dimensions more than typical "street analyst" forecast of a single target-price at one point in time. Instead of only one higher (or lower) future price, the MM forecasts are drawn from market data valid across relevant (typically shorter) periods of time for both the upper and lower price limits seen as likely to be encountered in such a period.

That range of coming prices for each investment candidate is clearly split into upside and downside prospects by its today market price. We note what proportion of that whole forecast price range is between the today market quote and the low-end prospect, the downside exposure. We label that % of the range as the Range Index [RI] and note it in column [G] of Figure 2. It gets used to identify and average all prior RIs of similar size as a suitable sample of subsequent market outcomes in column [L], as a proportion of all price-range forecasts for the stock in the past 5 years of market days [M].

With those samples, scaled individually to each candidate's relevant prior-sample outcomes, we now can make appropriate direct comparisons of answers to questions of:

How big a capital gain might be expected from this stock in the next few months? [ I ] Out of the sample, what are the Odds (how likely) that any one will be profitable? How long, on average, [J] might it take for a typical sample holding to come to a disciplined termination? In that average holding period, how bad an interim price drawdown might be experienced? How credible [N] is the current upside forecast [E] compared to what history realized [ I ]? Given [E] and [F], what is the current Reward to Risk [T] ratio?

Key attention-grabbers should be column [E], the % upside price changes between [D] and [B], and (based on past forecasts like today's) how likely those forecasts are to come about in the next 3 months: Column [H], Win Odds.

Those odds are from [L] Sample Size prior forecasts with upside-to-downside price change balances like today's, indicated by [G] Range Indexes, where the numeric tells what % proportion of the full [B] to [C] range lies between [D] and [C].

We further take those [H] odds, and their complement, 100 - H, as weights to the price drawdown Risk experiences of the sample [L] during its various attempts to achieve the [E] rewards, as shown in [ I ]. The net of that combination, as [O] + [P] = [Q], gets put in RATE of RETURN measured in "basis points per day" [R] by [Q] / [J], where a basis point = 1/100th of a percent. In other terms, a % of a %.

These [R] column measures provide a universal comparison means for the attractiveness of investment-capital, so the rows of Figure 2 are all ranked, with GSHD at the top rank.

Given that we are posed with a decision under the inevitable uncertainty of the future, no collection of answers or actual outcomes can be expected to prove perfection. But on balance they should help investors to tailor their candidate choices to best address the degree to which the data leads each investor to the most satisfying outcomes, most of the time.

Where the objective is to find from the candidates in Figure 2 the biggest, quickest, most likely capital gain in the next 3 months with the least interim price drawdown distress, it appears that the logical choice is with GSHD.

Recent Trends in GSHD Price-Range Forecasts

Figure 3

MM price-range forecasts daily past 6 months

(used with permission)

With historic odds for a profitable experience of 9 out of every 10 and prior experience holdings of less than 2 months (of 21 market days) the prospect of strong triple-digit gain rates is powerful in comparison with other insurance industry investment alternatives and competitive when compared with averages of the best 20 of a large price-forecast population.

Some better perspective comes from once-a-week copies of MM forecasts over the past two years.

Figure 4

Weekly MM price range forecasts over 2 years

used with permission


Comparing these investment candidates to choose the best near-term capital gain prospect, Goosehead Insurance, Inc. appears to be far better suited than all the others.

This article was written by

Peter F. Way, CFA profile picture
Peter Way Associates provides daily updated, near-term (3-month) price range forecasts for over 2,500 widely-held and actively-traded stocks, ETFs and market Indexes. Comprehensive results are available on the SA blog of my name.__These forecasts are derived from the way market professionals protect their own capital placed at risk while helping big-money portfolio managers adjust their holdings in multi-million-dollar "block" transactions.__ They cannot be found elsewhere.__Having these price-change prospects available on a continuous basis encourages individual investors to actively and economically build up the values of their own smaller portfolios. PWA only provides information for individual investors; it no longer manages investments for others.__Rates of portfolio capital growth being achieved by subscribers are at MULTIPLES of the growth in market averages, due to the efficient use of holding period time and the compounding of gains a number of times each year.__Risks of capital loss are protected against by insightful selection guidance and holding-period-limit disciplines. The advantages of good selection and careful timing amply cover a much smaller portion of unavoidable losses.__These Market-maker forecasts have several decades of demonstrated productivity. Earlier in the 20th century they were used by large institutional portfolios, and now in the 21st century they are available only to individual investor wealth-building portfolios. Thousands of day-by-day identifications of specific securities having consistent, odds-on profitable results rule out any likelihood of their exceptional outcomes being due to chance. Peter F. Way is a veteran Chartered Financial Analyst, having taken and passed the CFA Institute’s required 3 examinations in the first years they were given, 50+ years ago. Armed with BS in Economics from the Wharton School and an MBA degree from Harvard Business School, he has managed staffs of dozens of Investment Researchers and Quantitative Analysts for the nation’s largest bank, arbitraged index options for NYSE Specialists, and managed portfolios of hundred-million-dollar equity investments for Fortune 100 corporate pension funds and non-profit endowments. He has been elected President of professional Investment Analyst Societies in San Diego and New York City and has served on the editorial boards of the Financial Analysts Journal and the CFA Digest.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in GSHD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Additional disclosure: Peter Way and generations of the Way Family are long-term providers of perspective information, earlier helping professional investors and now individual investors, discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations.

We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So our information presents for D-I-Y investor guidance what the arguably best-informed professional investors are thinking. Their insights, revealed through their own self-protective hedging actions, tell what they believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided.

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