Insperity has been on fire lately. In the past six months alone, the company’s stock price has rocketed 152%, reaching $50.26 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Insperity, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Insperity Not Exciting?
Despite the momentum, we don’t have much confidence in Insperity. Here are three reasons we avoid NSP, plus one 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 as its annualized revenue growth of 2.5% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
2. Shrinking Adjusted Operating Margin
Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.
Analyzing the trend in its profitability, Insperity’s adjusted operating margin decreased by 3.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Insperity’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its adjusted operating margin for the trailing 12 months was breakeven.
3. 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 27.1% annually over the last five years while its revenue grew by 8.7%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Insperity’s business quality ultimately falls short of our standards. After the recent surge, the stock trades at 21.3× forward P/E (or $50.26 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Like More Than Insperity
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