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Insperity, Inc. (NYSE:NSP) closed yesterday at $118.59, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.
What can we expect from NSP in the future?
Insperity is poised for significantly high earnings growth in the near future. The consensus forecast from 4 analysts is extremely bullish with earnings per share estimated to rise from today’s level of $3.884 to $6.128 over the next three years. This results in an annual growth rate of 21%, on average, which illustrates a highly optimistic outlook in the near term.
Can NSP’s share price be justified by its earnings growth?
Insperity is looking rather expensive based on its price-to-earnings (PE) ratio of 30.53x. This illustrates that Insperity is overvalued compared to the US market average ratio of 17.45x , and overvalued based on current earnings compared to the Professional Services industry average of 20.66x .
We understand NSP seems to be overvalued based on its current earnings, compared to its industry peers. However, to properly examine the value of a high-growth stock such as Insperity, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 30.53x and expected year-on-year earnings growth of 21% give Insperity a higher PEG ratio of 1.48x. Based on this growth, Insperity’s stock can be considered slightly overvalued , based on its fundamentals.
What this means for you:
NSP’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Are NSP’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has NSP been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of NSP’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.