Assessing Insperity (NSP) Valuation After Contrasting P/E And DCF Signals

Insperity stock performance snapshot after recent moves

Insperity (NSP) has caught investor attention after recent share price moves, with the stock up about 21% over the past month but showing a roughly 38% decline over the past year.

See our latest analysis for Insperity.

The recent 1 month share price return of 20.89% and year to date share price return of 21.83% suggest short term momentum is improving, even though the 1 year total shareholder return of 37.82% decline points to a much weaker longer term experience for holders.

If Insperity’s moves have you reassessing HR and business services, it could be a good moment to broaden your watchlist with fast growing stocks with high insider ownership.

With Insperity trading at US$47.05 against an analyst price target of US$42.75 and an estimated intrinsic value that implies a 74% discount, you have to ask: is this a genuine opportunity, or is the market already pricing in future growth?

Price to earnings of 104.4x: Is it justified?

At around 104.4x P/E, Insperity’s share price implies a high earnings multiple compared with both its own history and the wider professional services peer group.

The P/E ratio links today’s share price to the company’s earnings, so a higher multiple usually signals that the market is placing a richer value on each dollar of profit. For a human capital and HR solutions provider like Insperity, this often reflects what investors think about the stability of its client base, the quality of its earnings and how sustainable profit growth could be over time.

Here, Insperity looks expensive on several fronts. The current P/E of 104.4x sits well above the US professional services industry average of 24.1x and also above the estimated fair P/E of 91.4x that our models suggest the market could eventually gravitate toward. Against a peer average of 16.1x, the gap is even wider, which indicates investors are currently paying a premium that is hard to ignore.

Explore the SWS fair ratio for Insperity

Result: Price-to-earnings of 104.4x (OVERVALUED)

However, you still need to weigh risks such as the 38% 1-year total return decline and a high 104.4x P/E if earnings momentum softens.

Find out about the key risks to this Insperity narrative.

Another view on value: what the cash flows say

While the 104.4x P/E paints Insperity as expensive, our DCF model comes to a very different conclusion, with the shares trading at a 74.2% discount to an estimated future cash flow value of US$182.02 per share. One model flags rich earnings, and the other flags cheap cash flows. Which lens do you trust more?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Insperity for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 883 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Insperity Narrative

If you look at these numbers and reach a different conclusion, or prefer to test the assumptions yourself, you can build a custom view in minutes with Do it your way.

A great starting point for your Insperity research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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