Palomar Holdings (NASDAQ: PLMR)
has emerged as one of the standout performers in the specialty insurance sector,
delivering strong revenue expansion, rising profitability, and robust cash flow
generation. The company’s Q3 2025 earnings results reinforced its reputation as
a high-quality growth insurer, while its current valuation suggests the stock
may still be undervalued relative to its long-term potential. In this article
we will dive into Palomar Holdings recent earnings, stock performance &
valuation, growth potential, and the risks investor should consider.
About Palomar Holdings
Palomar Holdings is a specialty
property and casualty insurance holding company headquartered in La Jolla,
California. Founded in 2014, the company focuses on underserved insurance
markets by offering customized residential and commercial coverage. Palomar
operates through multiple subsidiaries across key lines such as earthquake,
inland marine, casualty, fronting, crop, and excess and surplus insurance.
Supported by disciplined underwriting and data-driven risk management, Palomar
holds an “A (Excellent)” financial strength rating from AM Best.
Palomar Financial Performance
Palomar Holdings delivered
exceptional financial performance in Q3 2025, highlighted by strong
year-over-year growth across all key metrics. Quarterly revenue reached $244.66
million, up 64.75% from $148.5 million in Q3 2024, while EPS rose to $1.87, a 62.61%
increase from $1.15 a year earlier. On a trailing twelve-month basis, revenue
grew 54.59% to $778.36 million, and EPS increased 51.73% to $6.40. Free cash
flow generation remained robust, with TTM free cash flow per share of $13.26,
up 61.9% year over year from $8.19. The company posted strong profitability
with a Gross profit margin of 31.65%, Net profit margin of 22.59%, and Free
cash flow margin of 46.79%, supported by a Return on assets of 5.41% and an
impressive Return on equity of 22.24%, all while maintaining a debt-free
balance sheet.
Over the past five years, Palomar
has grown its revenue at a 34.6% CAGR, net income at 108.1%, and free cash flow
at 46%, which are exceptionally high growth rates for a typical insurance
company. This demonstrates that Palomar’s management has executed flawlessly,
delivering hypergrowth financial performance.
Palomar Fiscal 2025 Financial
Forecast
Looking ahead, analysts forecast 2025
revenue of $796.32 million, representing 55.09% growth from 2024 $513.47
million, and non-GAAP EPS of $7.73, up 51.78% year over year from $5.09. Wall
Street maintains a Buy rating on the stock, with an average price target of $160.6,
implying 18.63% upside, and a high estimate of $178, offering potential upside
of 31.5% from current level.
PLMR Stock Price Performance
and Valuation
At the time this article was written Palomar’s stock was trading at $135.38 per share. The stock has gained 29.6% over the past year, significantly outperforming the S&P 500’s 16.9% increase during the same period. While the stock has risen 52.3% over the past five years, it has underperformed the S&P 500’s 83.8% gain, because of high valuation in the past.
From a valuation perspective, Palomar trades at a Price
to sales P/S (TTM) of 4.61 and forward P/S of 4.49, alongside a non-GAAP Price
to earnings P/E (TTM) of 18.82 and forward Price to earnings P/E of 17.45,
which undervalued for a company delivering over 50% revenue and earnings
growth. Additionally, the Price to free cash flow P/FCF ratio of 9.85 is low
valuation compared to its strong cashflow generation.
Based on Fiscal.ai data, when
examining valuation over the past five years, Palomar’s forward P/S, forward
P/E, and P/FCF are all below their historical averages. This indicates
potential undervaluation, as Palomar’s financial performance is still projected
to grow rapidly in the coming years.
Palomar Growth Potential
Palomar growth potential remains
strong, driven by several factors.
- Palomar 2X Strategy Execution
and Achievement Track Record
The Palomar 2X framework, introduced in 2022, reflects a disciplined and repeatable value-creation strategy that has delivered in execution. The company successfully doubled 2022 adjusted net income within three years, and Q3 2025 results indicate acceleration into the next doubling cycle. Full-year 2025 adjusted net income guidance was raised to $210–215 million from $198–208 million, implying over 59% annual growth and adjusted ROE above 20%. Twelve consecutive quarterly earnings beats across diverse market and catastrophe conditions highlight a sustainable growth engine rather than one-off outperformance.
Importantly, Palomar 2X relies on multiple levers beyond premium growth, including reduced reinsurance cessions, higher investment leverage, operating scale efficiencies, and continued combined ratio optimization. This diversified approach lowers execution risk, supports earnings predictability, and reinforces the framework’s durability across market cycles. - Underwriting Excellence and
Combined Ratio Expansion
Palomar’s adjusted combined ratio of 74.8% in Q3 2025 marks a 230 basis-point improvement from 77.1% in Q3 2024, underscoring strong underwriting discipline and risk selection. A combined ratio well below 100% means Palomar is highly profitable on underwriting alone, with gains flowing directly to shareholder value. This performance far exceeds the industry average of roughly 96–97%, placing Palomar among the most efficient specialty insurers.
The advantage stems from proprietary, data-driven underwriting that evaluates risk at zip-code and geocode levels, critical in catastrophe-exposed markets. Q3 losses totaled $72.8 million, including a 31.5% attritional loss ratio, a minimal 0.8% catastrophe loss ratio, and $6.1 million of favorable prior-year reserve development. This consistent execution supports a durable 400–500 basis point combined ratio edge that compounds as premiums scale, reinforcing Palomar’s 2X growth objective. - Diversified Product Portfolio
and New Market Penetration
Gross written premiums rose 44% year over year in Q3 2025, driven by strong contributions from newer product lines that more than offset maturation in the core earthquake franchise. All segments except fronting posted double-digit growth, highlighting meaningful diversification beyond Palomar’s historical base. Excess and primary general casualty grew over 110%, environmental liability increased 119%, and real estate E&O expanded 65%, signaling market share gains in underserved specialty niches.
The crop insurance business, enhanced by the Advanced AgProtection acquisition, generated roughly $200 million of 2025 premiums with a long-term $500 million to $1 billion target. The $300 million Gray Casualty and Surety acquisition further expands geographic reach and federal bonding capabilities. Together, these initiatives reduce catastrophe concentration, add countercyclical stability, and build a more resilient, multi-vector growth portfolio.
Risk to Consider
While Palomar looks like a
compelling investment case, we should be mindful of potential risks.
- Underwriting Margin Pressures
Declining commercial pricing in earthquake and property lines has pressured renewal yields and slowed core premium growth. At the same time, expansion into casualty and professional liability increases exposure to reserve risk, as demonstrated by adverse developments at industry peers. Inaccurate claims evaluation, underwriting missteps, or third-party administrator failures could also lead to unexpected losses, earnings volatility, and reputational damage. - Catastrophe Exposure
Rising frequency of natural disasters like hurricanes and wildfires heightens loss potential, with 2023 estimates showing $57.5 billion in hurricane damages alone. Reliance on risk models introduces uncertainty if assumptions fail, such as unmodeled events or inaccurate third-party data, leading to losses exceeding probable maximum loss estimates. Reinsurance availability may tighten in hard markets, increasing costs or retention levels. - Regulatory Compliance
Extensive state insurance regulations, including change-of-control approvals, could deter acquisitions or raise compliance costs estimated at $3.4 million annually. Evolving NAIC standards and statutory accounting changes pose ongoing adaptation risks, with potential fines up to $500,000 per violation. A financial strength rating downgrade from A.M. Best's current "A (Excellent)" could limit business and breach debt covenants.
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Conclusion
Palomar Holdings presents a
compelling investment case supported by strong financial performance,
disciplined underwriting, and robust cash flow generation. The company’s rapid
revenue and earnings growth, debt-free balance sheet, and attractive returns on
equity highlight its operational strength. Despite solid recent stock
performance, valuation remains reasonable relative to growth prospects. With
favorable market dynamics in specialty insurance and continued analyst support,
Palomar appears well positioned to sustain long-term growth, making the stock
an attractive opportunity for growth-oriented investors.
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