Insperity-Getting Serious!

The Stay Invested portfolio was UP today: $677.20 (+0.62%)

Overall GAIN/LOSS YTD: +$6,254.50 (+6.09%)

Start: $102,717.24

Current: 108,971.74

Our benchmark index, the S&P 500 is UP Year-To-Date +10.72%

http://money.cnn.com/data/markets/sandp/

(daily performance is updated after the close, early blog posts typically show the previous days performance)

"In God we trust. All others must bring data."

― W. Edwards Deming

Statistician, professor, author, lecturer, and consultant.

Many in Japan credit Deming as one of the inspirations for what has become known

as the Japanese post-war economic miracle of 1950 to 1960

The Photo

For this 'Getting Serious' post I've trotted out my serious look photo for dramatic effect.

Lagging

The portfolio is still lagging the S&P 500 but has had much lighter draw downs or 'volatility' than the broad market index. I think this is important to keep investors invested. Volatility makes us want to go to cash and get out of the market. I'd also point investors to look at the SPY and the VTI ETF index funds for comparison. The most popular of these is the SPY which very closely tracked the market YTD with a 10.98% return. The Vanguard VTI, a component of our portfolio with a lower expense ratio and broader basket of stocks delivered a whopping 11.84% YTD.

Insperity

My third stock was about to be our first sell since Insperity is up over 45% YTD in our portfolio. We got lucky and bought at a very low price of just $88.72/share. The stock is trading right around $129.73 today, well above our sell price of $112. These are the stocks where I'm regretting not taking a full position; but that's part of the game.

Looking closer at Insperity I've decided to 'Get Serious' and let this one run a while longer. My thesis is really basic, this exceptionally well run company has had 4 years in a row with growth in adjusted EBITDA above 25%, increasing from $84M to $240M demonstrating effective execution of their strategic plan. (I paraphrased CEO Paul J. Sarvadi). With the continued growth in U.S jobs, rising wages and ever increasing obligations on small to medium size businesses to stay compliant with payroll and other HR issues, I think Insperity continues to appreciate through 2019.

  • Employers need Insperity

  • Revenues rose 17% Y/Y in Q4 to $966.8M

  • 17% increase in the average number of worksite employees (WSEEs) paid/ month

  • Share repurchases totaled 0.99M shares at a cost of $97.1M

  • Strong Q1 guidance: Average WSEEs 224-226K; Adj. EBITDA: $96-99M (+15%-18%) Adj. EPS: $1.85-1.91 (+31%-35%)

  • FY2019 guidance: Average WSEEs 234.4-242.6K; Adj. EBITDA: $268-285M (+12%-19%) Adj. EPS: $4.37-4.69 (+17%-25%)

Background

Insperity, Inc. provides human resources (HR) and business solutions to enhance business performance for small and medium-sized businesses in the United States. The company offers its HR services through its Workforce Optimization and Workforce Synchronization solutions, which encompasses a range of human resources functions comprising payroll and employment administration, employee benefits, workers' compensation, government compliance, performance management and training, and development services. It also provides Insperity Premier, a cloud-based human capital management platform that provides professional employer organization HR outsourcing solutions to its clients and worksite employees; and Workforce Administration solution that offers human capital management and payroll services. In addition, the company offers other business performance solutions consisting of human capital management, payroll services, time and attendance, performance management, organizational planning, recruiting services, employment screening and expense management services, retirement services, and insurance services via desktop applications and cloud-based delivery models. The company was formerly known as Administaff, Inc. and changed its name to Insperity, Inc. in March 2011. Insperity, Inc. was founded in 1986 and is headquartered in Kingwood, Texas.

Key Points

Insperity is a rapidly-growing professional employer organization (PEO) for small and medium-sized businesses. In a PEO employment model the employee is "co-employed" by Insperity, the business that contracts with Insperity. This arrangement allows the business to focus on its core competencies and for the employee to be better served from an HR perspective. Through a critical mass of co-employed workers, Insperity is able to bundle services for multiple businesses at competitive prices.

Last August Insperity entered an agreement with Mylo for it's Workforce Acceleration. Insperity can now offer brokered benefits and business insurance. The Workforce Acceleration program significantly expands Insperity's Total Addressable Market (TAM).

Looking at the 3-year chart for Insperity, a patient investor has done very well with a 482.57% increase since 2016 while the commercial services sector as a whole has not performed nearly as well. An investor who bought a Commercial Services sector ETF like the iShares IYC would have seen 48% growth over the same 3 year period.

Valuing NSP

Ratios

Compared to its peer group and the S&P 500 NSP trades at a premium.

Price/Earnings: 40.29

Trades at a premium, might signify higher growth ahead. Insperity's peer group trades at a P/E of about 33. Investors are clearly 'paying up' for growth.

Price/Proj. Earnings

Trades on par with peer group.

Price/Book Value 67.8

NSP trades at a significant premium to its peers and the S&P on a price/Book vale ratio. Investors seeking value wouldn't like this metric, but Insperity is delivering consistantly giving justification to its elevated multiple.

Earnings Growth

I discussed this earlier. NSP has been delivering double digit earnings growth for 4 years and expects to continue this growth rate for FY2019. Higher earnings growth rates can lead to stock price appreciation.

Sales Growth

Here’s the hidden gem, Insperity is taking market share as indicated by the elevated sales growth above its peer group. Insperity sales growth is at about 16-17x vs an industry that is delivering 10-11x.

Verdict

I like NSP and plan to stick with it a little longer. I'm always reminded "Bulls make money, Bears make money but pigs get slaughtered". It's an old saying that reminds investors to not get greedy, I'm walking a fine line with this company, but I think we have the data to justify a higher price target.

With 88.34% of the shares held by institutions and 9.54% held by insiders, only 2% of the stock is in float to individual investors. With only 2% in play the stock is unlikely to take a big dip. The other statistic I like is the short interest. Short sellers have been accumulating shares, which in most cases should be telling us to back away, something is wrong. However, with NSP the short sellers have been consistently wrong. The reason I like the increasing short percentage is that eventually the shorts will have to cover, creating a 'short squeeze' that will cause the stock to rise significantly. Due to a number of fundamental and technical indicators I'm raising my year end price target to $155, over 19% above the current price and 75% above our initial purchase price. Insperity is priced nearly to perfection, but as long as any bad news isn't a systemic problem with the company I'll stick with the stock.

My Buy below price: $88.72 (January 1, 2019)

My price target is $125.75 (January 1, 2019)

My New PT: $155; 75% upside from our initial buy (February 15, 2019)

Analysts average PT is $125.75

Low PT: $119

High PT: $134

Stay Invested,

Clay Baker

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Keep Me Honest

S&P 500 declines to 2,350 or more (1-3-2019)

Healthcare and Biotech sectors outperform (1-3-2019)

S&P reaches 3,000 by year end (1-11-2019)

CSCO reaches $60/share (1-18-2019)

VEEV reaches $145/share (2-14-2019)

NSP reaches $155/share (2-15-2019)

Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:

CVS, CSCO, VEEV, STZ, AMZN, NVDA, BCRX, GS, BDSI, VEEV, VTI, GLD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

© 2016 by Clay Baker all rights reserved