Insperity (NSP)

HR outsourcing provider Insperity (NYSE:NSP) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 3.4% year on year to $1.86 billion. Its non-GAAP profit of $1.57 per share was 22.4% below analysts’ consensus estimates.

Company Overview

Pioneering the professional employer organization (PEO) industry it helped establish, Insperity (NYSE:NSP) provides human resources outsourcing services to small and medium-sized businesses, handling payroll, benefits, compliance, and HR administration.

The Professional Staffing & HR Solutions subsector within Business Services is set to benefit from evolving workforce trends, including the rise of remote work and the gig economy. With companies casting a wider net to find talent due to remote work, the expertise of staffing and recruiting companies is even more valuable. For those who invest wisely, the use of predictive AI in recruitment and screening as well as automation in HR workflows can enhance efficiency and scalability. On the other hand, digitization means that talent discovery is less of a manual process, opening the door for tech-first platforms. Additionally, regulatory scrutiny around data privacy in HR is evolving and may require companies in this sector to change their go-to-market strategies over time.

Insperity competes with the PEO divisions of large business services companies like Automatic Data Processing (NASDAQ:ADP) and Paychex (NASDAQ:PAYX), as well as other national PEO providers such as TriNet Group (NYSE:TNET), Vensure, and Rippling.

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $6.64 billion in revenue over the past 12 months, Insperity is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions.

As you can see below, Insperity’s sales grew at a solid 8.6% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade 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.

This quarter, Insperity grew its revenue by 3.4% year on year, and its $1.86 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.7% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and indicates its newer products and services will catalyze better top-line performance.

Insperity was profitable over the last five years but held back by its large cost base. Its average operating margin of 3.2% was weak for a business services business.

Analyzing the trend in its profitability, Insperity’s operating margin decreased by 3.3 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.

This quarter, Insperity generated an operating profit margin of 3.7%, down 2.3 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales 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 due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into Insperity’s earnings to better understand the drivers of its performance. As we mentioned earlier, Insperity’s operating margin declined by 3.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Insperity reported EPS at $1.57, down from $2.27 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Insperity’s full-year EPS of $2.86 to grow 29.1%.

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.

Insperity has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.3% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that Insperity’s margin expanded by 1.7 percentage points during that time. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Insperity is a well-capitalized company with $568 million of cash and $436 million of debt on its balance sheet. This $132 million net cash position is 4.5% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We struggled to find many positives in these results as it lowered its full-year guidance while missing Wall Street’s EPS and EBITDA estimates. Overall, this was a softer quarter. The stock traded down 13.4% to $68 immediately following the results.

Updated: May 16, 2025 at 11:44 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Insperity.

Insperity isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its declining EPS over the last five years makes it a less attractive asset to the public markets. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its cash profitability fell over the last five years.

Insperity’s P/E ratio based on the next 12 months is 19.4x. Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $77.25 on the company (compared to the current share price of $71.75).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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