Insperity currently trades at $44.35 per share and has shown little upside over the past six months, posting a small loss of 2%. The stock also fell short of the S&P 500’s 7.2% gain during that period.
Is now the time to buy Insperity, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Insperity Will Underperform?
We’re cautious about Insperity. Here are three reasons we avoid NSP, plus one stock we’d rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within business services, a stretched historical view may miss new innovations or demand cycles. Insperity’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 2.5% over the last two years was well below its five-year trend. 
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Insperity, its EPS declined by 30.5% annually over the last five years while its revenue grew by 9.5%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Insperity’s margin dropped by 4.6 percentage points over the last five years. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s in the middle of an investment cycle. Insperity’s free cash flow margin for the trailing 12 months was breakeven.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Insperity, we’ll be cheering from the sidelines. With its shares underperforming the market lately, the stock trades at 20.1× forward P/E (or $44.35 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. We’d recommend looking at our favorite semiconductor picks and shovels play.
Stocks We Would Buy Instead of Insperity
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