Hagerty: A Value Investor's Look at Moat, Margin of Safety, and Long-Term Compounding

Hagerty's model is built on a durable foundation. The company has transformed from a niche insurer into a full-stack platform for automotive enthusiasts, and its competitive advantages appear wide and defensible. The moat rests on three interconnected pillars. First, it possesses proprietary valuation data, a critical asset in a market where authenticity and condition drive value. Second, it commands a loyal enthusiast community exceeding 800,000 Drivers Club members, creating a powerful network effect and a direct channel to high-engagement customers. Third, its integrated services-insurance, valuation tools, events, and a digital marketplace-create a flywheel where each interaction increases customer lifetime value and cross-sell opportunities.

This transformation into a platform is the engine for long-term compounding. By combining agreed-value insurance with valuation guides, online auctions, and membership events, Hagerty captures more of the customer's journey. The company's expansion through the Broad Arrow acquisition and the State Farm rollout demonstrates a clear strategy to scale distribution and tech-driven monetization. If executed well, this model can compound over decades, as each new service deepens customer relationships and increases the total addressable market within its ecosystem.

The broader market trend supports this thesis. The collector car market is professionalizing, with a clear shift toward online channels and more modern, high-value vehicles. Online auction sales grew faster than live ones in 2025, and the average age of seven-figure cars is getting younger, with seven of the year's top 10 sales expected to be post-1990 vehicles. This aligns perfectly with Hagerty's platform strengths, which cater to a demographic that includes younger modern-classic and EV-heritage owners. The company is positioned to capture value in this evolving landscape, where digital engagement and a curated selection of contemporary icons are becoming more important.

The bottom line is that Hagerty has built a business with a wide moat and a compelling long-term trajectory. Its ability to compound value hinges on successfully scaling its platform and deepening its integration across services. The market's professionalization provides a favorable tailwind. Yet, as we will see, the durability of this advantage and the company's future cash flows must be weighed against the price paid today.

Financial Quality and the Margin of Safety Calculation

The stock's premium valuation demands near-perfect execution, leaving little room for error. As of late December, Hagerty trades at a P/E ratio of 47.67. This is a steep discount from its own 12-month average but still represents a significant premium to its own 5-year average of 29.06. In essence, the market is pricing in a long, uninterrupted period of high-growth execution. For a value investor, this creates a classic tension: the wide moat and compounding potential are real, but the price paid today offers a minimal margin of safety.

The sustainability of those earnings is the core question. The company's financial history is one of transition. It has a track record of negative earnings per share, and even its recent profitability is modest. As of late November, the trailing twelve-month EPS stood at just $0.17. This figure underscores the speculative nature of the current valuation. The high P/E ratio implies immense confidence in the company's ability to compound at a rapid rate for many years, a scenario that requires flawless scaling of its platform and continued dominance in a professionalizing market.

Viewed another way, the valuation leaves no margin for operational missteps, economic headwinds, or slower-than-expected growth in its new services. It assumes the flywheel will accelerate without friction. Compared to traditional insurers, where a P/E of 10-15 is common, Hagerty's multiple is in a different league entirely. This is a growth-at-a-reasonable-price (GARP) bet pushed to the extreme, where the "reasonable" part of the equation is stretched thin.

The bottom line is that the margin of safety here is not in the price, but in the conviction in the business model. The current price offers a margin of safety only if the company's long-term compounding trajectory is as certain as its competitive moat. Any deviation from that path would likely be met with severe multiple compression. For a disciplined investor, this setup requires a higher degree of certainty than the financials alone can currently provide.

Catalysts, Risks, and What to Watch for the Patient Investor

For the patient investor, the path forward hinges on a few clear catalysts and risks. The primary catalyst is the successful scaling of the integrated platform, particularly the Marketplace and cross-selling across services. The company's expansion plan targets a 20-30% year-over-year increase in U.S. quote volume from the State Farm partnership. This is critical for justifying the premium valuation, as it demonstrates the flywheel is accelerating. The Marketplace segment is a key indicator; its revenue grew 58% year-over-year in Q3 2025, a strong signal. Investors should watch for this growth rate to remain robust and for the company to hit its raised full-year targets, which now call for Net Income growth of 58-65%.

The main risk is competitive pressure in the enthusiast segment. While Hagerty's moat is wide, specialized insurers and online marketplaces could challenge its dominance and pressure margins. The company's competitive position is built on proprietary valuation data and a loyal community of 800,000 Drivers Club members, but new entrants or aggressive pricing from established players could erode its pricing power. This risk is amplified by the high valuation, which leaves little room for margin compression.

The metrics to monitor are straightforward. Quarterly revenue growth, especially in the Marketplace segment, will show if the platform strategy is gaining traction. More importantly, the path to sustained profitability must be visible. The company's recent profitability is still modest, with a trailing EPS of just $0.17. The raised outlook for net income growth provides a near-term target, but the real test is whether this growth can be maintained and scaled profitably over the long term. For a value investor, the thesis is validated only if these catalysts materialize and the risks are contained, allowing the business to compound at the rate the current price implies.