Summary
- Verisk is a rare company that faces very little competition.
- Company has strong growth and high margins.
- Stock looks expensive in absolute and relative terms.
Verisk Analytics (NASDAQ:VRSK) is a data analytics and risk assessment firm that serves the financial, insurance, government and energy customers. It’s a fantastic company with a capital light business model subject to little competition. Unfortunately, the stock market seems well aware of just how well the company is doing and, as a result, the stock appears incredibly expensive.
Analyzing Verisk
As a B2B company, Verisk is probably not a household name, but with a market cap of around $25B, it’s about the 210th largest stock in the US market and about the same size as companies like Electronic Arts (EA) and PPG Industries (PPG).
The company provides proprietary datasets and data analytic services to primarily financial, energy, and government customers. The company’s products are used to help customers quantify insurance and underwriting risks for fraud detection and catastrophe modeling.
What is most attractive about Verisk is that the company has very little competition. When you read the section in the 10-K about competition usually the company describes competition as "intense" and points out many risks. Even companies that operate as oligopolies and face very little competition still usually have this language. Take Visa (V) for example, here’s what its 10-Ksays:
The global payments industry continues to undergo dynamic change. Existing and emerging competitors compete with Visa’s network and payment solutions for consumers and for participation by financial institutions and merchants. Technology and innovation are shifting consumer habits and driving growth opportunities in ecommerce, mobile payments, blockchain technology and digital currencies. These advances are enabling new entrants, many of which depart from traditional network payment models. In certain countries, the evolving regulatory landscape is changing how we compete, creating local networks, or enabling additional processing competition.
By contrast, Verisk's 10-K starts off by saying the company has no single competitor. "We believe that no single competitor currently offers the same scope of services and market coverage we provide. The breadth of markets we serve exposes us to a broad range of competitors as described below." Verisk also believes there is absolutely zero competition for a portion of its financial services business, saying: "Within the Financial Services segment, our unique datasets and wallet solutions means that we have no direct competitors." The company does list some competitors for each of its insurance business units, but it largely downplays competition. For example, this language is in the section about competition in the insurance business unit: "However, we believe that none of our competitors have the breadth or depth of data we have. Competitors for our property-specific rating and underwriting information are primarily limited to a number of regional providers of commercial property inspections and surveys." Only for its energy segment does Verisk say there is substantial competition. (It should be noted Verisk does have some typical boilerplate type disclosure about competition on page 19 of its 10-K.)
