1 Hidden-Treasure Financial Stock You Should Know About

Every investor is well familiar with the top names in American finance -- from JPMorgan Chase toCitigroup toMorgan Stanley, among others. The sector is so crowded by those noisy hulks, we can easily miss the occasional sleeper stock.

One of them lies in the insurance business. It's a very unconventional type of insurer, but that uniqueness makes it lots of money. Despite this prosperity few people have heard its name ... which might be very much to the detriment of their portfolios.

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Buying growthThe company is Enstar Group , and to paraphrase a classic advertising line, it's not your father's insurance company.

By and large, insuring is a fairly traditional and straightforward business. A company ascertains the chances of a certain calamity or calamities befalling a client, and underwrites a policy accordingly.

It then collects premiums on that policy, parks that money into investments, and ideally (for it and its investors, anyway) does not end up on the receiving end of a claim down the road.

Not every insurance line reaches this ideal. Like any other good or service, it might prove to be unpopular, unprofitable, or not viable as a business for a host of other reasons. In the insurance sector, such a product typically goes into "run-off"; the offering company stops offering new policies, choosing instead to only service existing ones.

That's where Enstar Group comes in. It buys run-offs from traditional insurers, taking them off their hands, and attempting to turn these lines into money-makers.

It does a good job of this. With its busy acquisition activity, the company nearly doubled its asset base within half a decade, boosting it from just over $5 billion in 2010 to almost $10 billion at the end of last year.

Collectively, those assets are very profitable. Across that same span of time, revenue has ballooned from $138 million to nearly $860 million.

As you'd expect from an insurer with product lines that fall into many different risk categories, its bottom line is choppier than the typical insurer. Still, Enstar Group has so far always managed to land in the black, and typically at chunky margins. In fact, last year's annual net profit was an all-time company record, at $214 million, which equates to a margin of 25%.

That helped the company notch a new share price record earlier this year, which is a feat considering the stock's been listed since early 2000. Before the broader market took a dive, the price zoomed to over $164 per share. That was a 10% gain from its level at the beginning of the year; by contrast, the S&P 500 rose by less than 3%.

The obscurity discountSince them, on the back of those queasy market gyrations the stock has declined, recovered, and seems to be in a holding pattern lately at around $150. That's a P/E of around 15 on trailing 12-month earnings.

It's hard to gauge where Enstar Group's profit is going to land, given the historic variability of that bottom line. Very few analysts track the stock, so it's hard to go by professional estimates. But the company has always delivered, and that rapidly expanding top line and its propensity to turn a healthy profit makes the current share price look like a bargain.

Meanwhile, it has recently started to acquire assets in more traditional insurance underwriting activities, a natural extension of its business that will add new revenue streams. It'll also likely smooth out earnings to some extent. A greater degree of predictability can be good for a stock.

So the future of Enstar Group looks very bright. It's a different kind of insurer, but in this case different is good -- not to mention lucrative and investor-pleasing.

The article 1 Hidden-Treasure Financial Stock You Should Know About originally appeared on Fool.com.

Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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