Goosehead Insurance, Inc. (GSHD) stock intrinsic value fair value estimate & owner earnings analysis

Goosehead Insurance sells home, auto and other personal insurance through corporate agencies and a franchise network. It earns commissions when a policy is written and again on each renewal, plus franchise fees and royalties. Revenue has grown every year, from $60 million in 2018 to $365 million in 2025 (up 16% in 2025). Renewal commissions on a large book of policies are the sticky core of the business. What we count as earnings. We start from operating cash flow, remove swings in receivables and deferred fees, and deduct stock compensation (about $23 million in 2025) as a real cost. We also deduct only the part of capital spending needed to maintain the business. On that basis earnings per share (counting the public shares plus the LLC units held by insiders, which share the same cash flow) were about $1.03 in 2023, $1.64 in 2024 and $1.69 in 2025. Earlier years were $0.18 to $0.79, held down by heavy IPO-era stock compensation and office build-out spending. We anchored on the 2023-2025 median of about $1.64, the period after the business reached scale. Growth in 2025 was only 3.5% because the company borrowed $300 million in January 2025 (about 7% interest at SOFR plus 3.0%), which raised annual interest cost, so 2024 flatters the level at today's debt. Two real cash costs sit outside operating cash flow because of the company's structure: payments under its tax receivable agreement ($6.7 million in 2025) and tax distributions to insiders' units (about $5 million). We deducted roughly $0.31 per share for them, giving a starting level of about $1.33 per share for the base case. Base case, about $24.50 per share. Earnings grow 3.5% in the first year, matching what was actually achieved in 2025, then 4 to 5% a year, and taper to zero by year 10 as the runway narrows. The credited growth comes from a mechanism that has run for eight years, adding franchise and corporate agency capacity and renewing a growing book. We did not credit margin expansion, new products or faster share gains. After year 10 earnings fade at 2% a year, because renewal commissions persist but replacing lost policies is no longer evidenced. Bear case, about $10.70 per share. The starting level drops to about $0.95 as receivable build-up (commissions receivable used $20 million of cash in 2024), lower deferred franchise fees (contract liabilities fell $19 million in 2023 and $9 million in 2024) and normal capital spending, which was unusually low in 2024, all bite. Earnings are flat for three years, then decline 2 to 3% a year, and the tail fades at 4% a year. The $298.5 million term loan comes due January 2032 with a $280.5 million final payment, which limits flexibility. Bull case, about $35.80 per share. The company's demonstrated growth engine executes well: earnings start at about $1.45 and grow 7 to 9% a year for the first five years, tapering to 2%, with a slow 1% fade afterward. Revenue growth of 16 to 25% a year in the past supports this, but we do not assume it continues at that rate. What we tested. The most important assumption is that 2025's level holds under the higher debt load. The filings show full-year 2025 operating cash flow of $91.8 million already includes the new loan's interest, which supports the level, though 2024's figure does not. We also deducted stock compensation and structure-related cash costs that a simple cash-flow measure would miss. A small amount of bad-debt expense is added back with the other non-cash items, which we did not adjust. What would make this wrong: a sharp drop in insurance commission rates or policy retention, higher-than-planned interest costs, or a return to large special dividends financed by more borrowing (the January 2025 $5.91 per share special dividend was funded by the new loan). We also note that the company repurchased $81.7 million of shares in 2025. Margin-of-safety price. The margin-of-safety price is about $12 per share, roughly half our base value and slightly above the bear case, given leverage, heavy stock compensation and a complex ownership structure.