Is Stewart Information Services (STC) a Buy Despite Elevated Valuation and Market Skepticism?

In the realm of contrarian value investing, the allure of undervalued stocks often lies in their ability to defy market pessimism. Stewart Information Services (STC), a titan in the title insurance and real estate services sector, has drawn both scrutiny and intrigue in 2025. With a trailing price-to-earnings (P/E) ratio of 19.96 and a price-to-book (P/B) ratio of 1.40 as of October 2025, the stock appears elevated relative to its intrinsic metrics. However, a deeper dive into its financial performance, short-interest dynamics, and industry context reveals a nuanced picture that may appeal to investors willing to challenge conventional wisdom.

Valuation Metrics: A Tale of Two Perspectives

STC's trailing P/E ratio of 19.96 according to data stands in stark contrast to the Property & Casualty Insurance sector's average P/E of 12.38 and the Specialty Insurance sector's 11.17 as reported. On the surface, this suggests the stock trades at a premium to its peers. Yet, the forward P/E of 11.70 derived from analysts' estimates-derived from analysts' earnings estimates-hints at a potential re-rating if the company meets or exceeds expectations. This discrepancy underscores a critical question: Is the market overcorrecting for near-term risks, or is STC's valuation genuinely misaligned with its fundamentals?

The company's recent earnings report offers a compelling counterpoint. In the latest quarter, STC reported $1.64 per share in earnings, surpassing estimates by $0.22, while revenue surged 19.3% year-over-year according to financial data. Such performance, particularly in a sector grappling with margin pressures, suggests operational resilience. For contrarian investors, this raises the possibility that the elevated P/E reflects optimism about future growth rather than an overvaluation.

Short-Interest Dynamics: A Barometer of Sentiment Shifts

As of November 28, 2025, short interest had declined to 2.12% of the float according to market data, down from 2.64% in early November as reported. This 6.51% reduction indicates a shift in sentiment signals a tangible shift in sentiment, with bearish bets retreating. The short-interest ratio (days to cover) of 3.21 remains moderate indicates that short sellers are not in a panic but rather recalibrating their positions.

Historically, sharp declines in short interest have preceded periods of outperformance, particularly in sectors where macroeconomic risks are perceived as temporary. For STC, the reduction in short interest aligns with its strong earnings report and hints at a market reassessing its narrative. If the housing market-a key driver of STC's business-stabilizes, as some analysts predict, the stock could see a surge in demand from both long-term investors and short-covering activity.

Contrarian Case: Balancing Risks and Rewards

The primary risks to STC's valuation stem from macroeconomic headwinds. A prolonged housing slowdown and rising operating costs according to market analysis could pressure margins, particularly in a low-growth environment. Additionally, the market's skepticism-evidenced by the assertion that STC trades at a "premium to its fair ratio" as stated in analysis-suggests lingering doubts about its ability to sustain earnings growth.

However, contrarian value investing thrives on such dislocations. STC's forward P/E of 11.70 implies market discounting implies that the market is already discounting these risks into the stock price. If the company can navigate the housing market's challenges-perhaps through cost optimization or diversification into adjacent services-the current valuation may represent a compelling entry point. Furthermore, the declining short interest suggests that even skeptics are beginning to acknowledge STC's operational strengths.

Conclusion: A Calculated Bet for the Contrarian

While STC's elevated valuation and market skepticism warrant caution, the interplay of strong earnings, improving short-interest trends, and a forward P/E that suggests discounted optimism creates a compelling case for a contrarian buy. Investors must weigh the risks of a prolonged housing downturn against the potential for a re-rating if the company executes its strategic priorities. For those with a long-term horizon and a tolerance for volatility, STC could offer a rare opportunity to capitalize on market overcorrection.