$0.53 beats by 2 making this 11 out of 12 quarterly beats. More importantly book value leapt.

Book Value Per Share of $9.03 Increased 12.4% During the Quarter and 38.1% Year to Date

At $11.39 after hours that’s a price to book of 1.26 for a fast growing superbly manged insurer.

Third Quarter and Nine Months Highlights:

• Quarterly diluted operating earnings per share of $0.53 ($0.64 in 2008)
• Quarterly diluted earnings per share of $0.40 ($0.15 in 2008)
• Nine months ended September 30, 2009 diluted operating earnings per share of $1.56 ($1.52 in 2008)
• Nine months ended September 30, 2009 diluted earnings per share of $1.25 ($0.95 in 2008)
• 25.1% annualized operating return on equity during the quarter
• Book value per share of $9.03 as of September 30, 2009 ($6.54 as of December 31, 2008)
• Combined ratio for the third quarter of 78.0% (58.0% in 2008)
• Combined ratio for the nine months ended September 30, 2009 of 79.1% (73.1% in 2008)
• Closed CyberComp(TM) renewal rights transaction early September 2009

Q3 2009 Release

AFSI Earnings History

AFSI Price to Book

As commented above AFSI’s new P/B is 1.26. If you look on the M* chart below I’ve drawn a blue line, poorly, where that is. Actually just above that line. It’s low. Considering the strength and potential of the business it’s highly probable owners and buyers will be able to sell at a P/B higher than 1.26.

Matrix time

It only takes a few minutes to whip up a matrix and associated chart. Or no time at all if you want one for AFSI.

Price is vertical axis, with a range of P/B along the bottom and book values for the next two years the columns. With a current price of $11.39 there is only one possibility, in this matrix, for you to loose. An equally improbable  upside would be a stretch to a double within two years. I like to own companies with this double shot potential for share price appreciation; potential for ratio expansion coupled with growing value. AFSI has that and a seemingly more than capable management to boot.

The risk to return appears to be well over my 1:3 minimum (for every dollar of risk I want three probable return). Ignoring black swans, a downside stretch from here would be $1.50 lower. That would put P/B at 1.1 and all those other ratios I posted yesterday at super sell-off lows. Three time $1.50 is $4.50, so I want $16, which almost half of the outcomes are above.

CAGRing it, $16 in two years is 18.5% annualized. My target is $22 in three years for a CAGR of 24.5%, that requires AFSI to keep firing on all cylinders. At a comfortable four years to hit $22, AFSI would still return almost 18% annual, or 20% with dividends.

Disclosure: Long AFSI

Related posts:

1. Amtrust Financial Services, Inc. (AFSI) Earning Preview Q2 2009
2. Amtrust Financial Services, Inc. (AFSI) Earning Preview Q1 2009
3. AmTrust Invests in Joint Venture
4. Akamai Reports First Quarter 2009 Financial Results, Announces Share Repurchase
5. Akamai Accelerates Its Earnings in Q3 2009
6. Safety Insurance Q3 2009 Earnings