Fort Lauderdale-headquartered property insurer Universal Insurance Holdings, Inc. (UVE) saw a precipitous stock drop on Dec. 3 as it appears investor over-exuberance over the hot financial-sector stock has been tempered.
Though the insurer has indeed posted a steady stream of increased profits, and made a splash with its promotion from the NYSE MKT to the New York Stock Exchange, the company’s shares had risen at a rate far above what was apparently sustainable. Starting on November 19, the company’s stock began its steady climb, eventually notching gains of almost 66 percent in less than three weeks. Prior to the start of the Dec. 3 trading day, shares of the company had gained a whopping 189.11 percent in value on the year.
An Auspicious Debut
Dec. 3 marked the inaugural trading session for Universal Insurance, and it did not play out in their favor. Initial trading indicated their move up to the NYSE would be a successful one, with the stock gapping some 4 percent.
However investor confidence waned immediately, with the morning’s advance reversed almost immediately amid exceptionally heavy volume.
Performance Does Not Match Fundamentals
Prior to their NYSE debut, Universal Insurance had been one of the hottest small cap financial stocks in 2013. However, their fundamentals weren’t always there – Equities.com research project Small-Cap Stars did not list Universal Insurance at all, finding that at the beginning of the year they met none of the four benchmarks for a successful financial small-cap.
Outliers are to be expected, and the ultra-gainers in any given year usually occur with companies that defy expectations. Up until Dec. 3, it appeared Universal Insurance was one such company. And they may be for some time. But their stock drop revealed that the company – which has been hitting all-time highs regularly since Nov. 19 – might have topped out.
Universal Insurance dropped 7.69 percent by midday to hit $12.04 a share.
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