Palomar Holdings, Inc. (PLMR): what the price assumes

In the published model solve dated 2026-Q2, anchored at $133.86, Palomar Holdings, Inc. (PLMR) is priced for 24.1% return on equity. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-06-27.

Generated: 2026-08-10 · Exported: 2026-08-12 · Source: https://boothcheck.com/report/PLMR

Headline

FieldValue
TickerPLMR
CompanyPalomar Holdings, Inc.
Current price$133.86/sh

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basisfinancials
Elite ROE must persist for39.7y before normalizing (held at the 17.7% elite tier)
Perpetuity-equivalent ROE24.1%
Return on equity now20.9%
ROE gap+3.2pp
Price-to-book3.70x

Solve inputs: computed at a 9.4% cost of equity; ROE searched up to the 17.7% ROE ceiling.

How unusual the bet is: elevated

ReferenceValue
vs own history+2.02σ
cohort percentile (of 88 peers)83
sustained it ~10 years at this level49%
implied end-window share0%

Valuation X-Ray

Every valuation family lands below the price. The price therefore sits beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset1.67x3expensive
Earnings1.73x1expensive
Relative—0—
Growth—0—

Families that call it expensive: Asset, Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.6%); the inversion above states its own rate.

Per-Model Detail (n=4)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth——no—
Bank Fair Value (P/TBV)—$132.411.01xyesTBVPS $36.18 × 3.66x (ROE (TTM) 20.6% / CoE 9.3%, g=5.0% (sustainable: 65% retention × ROE, 5% cap; not the terminal-growth assumption))
Relative ValuationRelative——noP/E 13.1x (blended: static sector reference 11x + trailing (TTM) 18x), scenarios: 10.5x / 13.1x / 15.7x (bear / base = reference held flat / bull), EV/EBITDA 10x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$80.391.67xyesBV/sh $36.18, ROE (TTM) 20.6%, ke 9.3%
Two-Stage Excess ReturnAsset$118.741.13xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth——noRev $1.0B, growth 30% (input: historical growth; tapered), Terminal P/S: 2.9x / 3.6x / 4.3x (bear / base = today's held flat / bull, cap 12x)
Peter Lynch Fair ValueRelative——noEPS $7.17, growth 35% (input: historical EPS growth), PEG=0.51 (Undervalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings——no—
Residual IncomeAsset——no—
Graham NumberAsset$76.401.75xyes√(22.5 × EPS $7.17 × BVPS $36.18) — Graham's conservative floor
EV/EBITDA RelativeRelative——no—
FCF YieldEarnings——no—
SBC-Adj FCF YieldEarnings——no—
Ben Graham FormulaEarnings——noEPS $7.17 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset——no—
P/Sales SectorRelative——no—
PEG Fair ValueRelative——noEPS $7.17 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x
Earnings YieldEarnings$77.511.73xyesEPS $7.17 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Economic-Unit Decomposition (Sum Of The Parts)

The issuer is a funded financial business. Debt, interest, and cash flows are operating inputs, so industrial EV, net-debt, WACC, and free-cash-flow lenses do not apply; value the common-equity claim with book, earnings, capital, and payout economics.

UnitRoleValuation basisRevenueReported profitValue evidenceStatus
Specialty insurance underwritingfinancialequity0.9B reported-currency—withheldunresolved standalone equity facts required

No unit-level total common-equity value is stated. Each financial unit requires supported standalone common equity, normalized earnings, capital adequacy, and payout capacity. Consolidated debt, interest, and cash are operating balances, not an enterprise-to-equity bridge; company-level book, earnings, capital, and payout lenses remain the coherent cross-checks.

Solvency

FieldValue
Share count CAGR (dilution)1.4%

Deposit/float-funded balance sheet: debt is funding, not corporate leverage, and GAAP operating cash flow follows loan flows. Net-debt, interest-coverage, and cash-burn lenses do not apply. The solvency frame for a financial is regulatory capital and payout capacity (CET1, stress buffer, dividends plus buybacks against earnings).

Bullet Takeaways

Bull Case

Palomar is a specialty insurer in a growth phase, and that frame dictates how to read it. An insurer's value is the return it earns on its capital, so the right yardstick is price-to-book against return on equity, not an earnings or cash-flow multiple. At about $112 the stock trades near 3.1 times book, and the question is simply whether the returns justify that. The recent record says they do: trailing ROE is around 20.9%, the adjusted combined ratio was 76% in Q1 2026 (meaning underwriting alone, before investment income, was highly profitable), and adjusted ROE for the quarter reached 27%. The inversion notes the assumed return is within reach of what Palomar has actually earned, so the price is paying for the company to keep doing what it is already doing, not for a leap.

The growth underneath the returns is rapid and broadening. Gross written premiums rose 42.4% year over year in Q1 2026 to $629.8 million, and the company raised full-year adjusted net income guidance to $266 to $280 million, its 14th consecutive quarterly earnings beat. Crucially, this is not concentrated growth: the 10-K states Palomar deliberately writes a diverse specialty mix by loss exposure, customer type, and geography to capitalize on opportunities, mitigate any single catastrophe, and reduce reinsurance cost, and earthquake has fallen to about 28% of gross written premiums as casualty, crop, inland marine, fronting, and other property lines have scaled. A specialty insurer compounding premium at 40%-plus while diversifying away from its original single-peril concentration is improving the quality of its growth, not just its size.

The capital story confirms management's confidence and the franchise's strength. Its admitted subsidiary is licensed in all 50 states with the flexibility to write nationally, the board authorized a new two-year $200 million buyback, and the company procured roughly $421 million of incremental reinsurance limit to support its earthquake franchise into the June renewals. That combination, buying back stock while expanding the reinsurance tower to underwrite more, is what a high-return insurer does when it sees more profitable business to write. The asset and earnings frames support the price: the two-stage excess-return model and the bank fair-value (price-to-tangible-book) approach both land near the quote, so a buyer is paying for sustained elite returns that the company is currently delivering and broadening.

Bear Case

The variable with the most leverage on Palomar is the one outside its control: catastrophe exposure and the price of reinsurance. The company began as an earthquake insurer, and even after diversification, earthquake is still about 28% of gross written premiums and the franchise it is expanding its reinsurance tower to support. Its 10-K is explicit about the mechanism of risk: if reinsurance arrangements change, loss exposure may increase and potential losses from catastrophe or non-catastrophe events rise, and if it is unwilling to bear that increased exposure, it may have to reduce written premiums. That is the bind a cat-exposed specialty insurer lives in. A hard reinsurance market raises the cost of protection and squeezes margins, while a soft one tempts more retained risk; either way, the 27% ROE the price extrapolates is hostage to reinsurance pricing the company does not set.

The valuation leaves little room for that risk to materialize. At 3.1 times book the price-to-book sits at the very top of the peer group, and the inversion shows the price assumes the elite-tier ROE persists for roughly 32 years before normalizing, when only about half of firms earning this return sustained it for even a decade. Mean reversion is the base rate in insurance: high returns attract capital and competition, pricing softens, and combined ratios drift toward the industry mean. The relative frame already reflects caution, applying a low single-digit-teens sector P/E that lands below the current price, and the Graham number and earnings-yield methods sit below the quote as well. The market is paying a growth-and-quality premium that requires Palomar to defy the long-run gravity of its own industry.

The macro and rate backdrop cut both ways but add fragility. Insurers earn investment income on the float they hold against future claims, so the level of interest rates matters to the earnings the price capitalizes, and a rate decline would trim that contribution just as underwriting cycles can turn. The 10-K describes managing catastrophe exposure by modeling event probability and severity and mitigating through underwriting, which is sound, but models are imperfect and a single large earthquake or hurricane in a concentrated zone could produce a loss that overwhelms a quarter or a year. For a stock priced at the top of its peer group on the assumption of sustained 20%-plus returns, the asymmetry is unattractive: a clean year merely meets the bar, while a major event, a hard reinsurance renewal, or normalizing competition all sit on the downside the price does not discount.

Valuation

Palomar is valued on the financial-sector basis, price-to-book against return on equity, because an insurer's worth is the spread between the return it earns on capital and its cost of equity, not an operating or cash-flow multiple. At about $112 the price is roughly 3.1 times book, which inverts to the market assuming an elite-tier ROE near the 17.4% panel ceiling sustained for about 32 years before normalizing, equivalent to holding roughly 20.9% in perpetuity, solved at a 9.5% cost of equity. For reference, trailing ROE has been about 20.9%, so the assumed return is within what Palomar has earned. The composite reads within range because the rate is achievable; the demand is in the duration, the requirement that elite returns persist for decades.

The applicable methods agree the price is supported but full. The bank fair-value model, tangible book per share times a multiple derived from the ROE-to-cost-of-equity ratio, lands near $128, modestly above the quote, the clearest sign the current returns justify a premium to book. The two-stage excess-return model lands close to the price at about $115. Against those, the relative and Graham-style frames sit lower: the sector P/E method lands in the mid-$90s and the Graham number in the mid-$70s, reflecting the more conservative assumption that returns normalize. The growth-oriented Lynch and PEG methods produce much higher numbers, but they rest on a 35% historical EPS-growth input that is not a durable forward assumption for an insurer, so they should be treated as upper-bound rather than central. The DCF, FCF, and EV/EBITDA frames are correctly gated off, because they do not apply to a float-funded financial.

The honest synthesis is that Palomar is fairly valued to modestly rich on its current elite returns, with the premium entirely dependent on those returns persisting. The bank fair-value and excess-return frames support the current price on today's profitability, but the price-to-book at the top of the peer group means there is little margin if catastrophe losses, reinsurance costs, or competition pull the ROE down from its current peak.

Catalysts

The catalysts are the quarterly underwriting results, the reinsurance renewals, and the diversification ramp. Palomar reported Q1 2026 with gross written premiums up 42.4% to $629.8 million, adjusted net income of $63.1 million ($2.31 per diluted share, up from $1.87), a 76% adjusted combined ratio, and a 27% adjusted ROE, marking its 14th consecutive earnings beat, and management raised full-year adjusted net income guidance to $266 to $280 million. The board also authorized a new two-year $200 million share repurchase program. Each subsequent print is a test of whether the elite combined ratio and ROE hold as the book grows, since the price is built on those returns persisting.

The reinsurance calendar is the structural catalyst for a cat-exposed insurer. Palomar completed reinsurance programs incepting June 1, 2026, procuring roughly $421 million of incremental limit to support its earthquake franchise, and the terms of those renewals directly set the cost of protection and the company's retained exposure for the coming year. The other watch item is the mix shift: earthquake has fallen to about 28% of gross written premiums as casualty, crop, fronting, inland marine, and other property lines scale, and continued diversification reduces single-event risk and reinsurance cost, which is the quality lever behind the premium valuation. Sell-side sentiment is constructive, with a Buy-to-Moderate-Buy consensus and price targets clustered around $144 to $162, above the current quote, though some bears have trimmed targets. The clearest upside triggers are continued premium growth with a sub-80 combined ratio and favorable reinsurance terms; the clearest risk triggers are a major catastrophe event, a hard reinsurance renewal that compresses margins, or the elite ROE normalizing toward the industry mean.

Peer Cohorts (Per Segment, With Filing Citations)

Specialty insurance underwriting (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

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