What a brutal six months it’s been for Insperity. The stock has dropped 21.2% and now trades at $60.36, rattling many shareholders. This was partly driven by its softer quarterly results and 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? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Insperity Not Exciting?
Even with the cheaper entry price, we don't have much confidence in Insperity. Here are three reasons why NSP doesn't excite us 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 as its annualized revenue growth of 4.1% over the last two years was 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 5.7% annually over the last five years while its revenue grew by 8.6%. 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 5.2 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business. Insperity’s free cash flow margin for the trailing 12 months was breakeven.
Final Judgment
Insperity isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 16.3× forward P/E (or $60.36 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our top digital advertising picks.
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