Insperity’s stock price has taken a beating over the past six months, shedding 40% of its value and falling to $52.93 per share. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Insperity, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Insperity Not Exciting?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons there are better opportunities than NSP and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within business services, a stretched historical view may miss recent innovations or disruptive industry trends. Insperity’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.2% 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 13% annually over the last five years while its revenue grew by 9%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Insperity burned through $93 million of cash over the last year. With $456 million of cash on its balance sheet, the company has around 59 months of runway left (assuming its $436 million of debt isn’t due right away).
Unless the Insperity’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Insperity until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
Insperity isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 16.6× forward P/E (or $52.93 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Like More Than Insperity
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