Stock Analysis

Insperity (NYSE:NSP) Looks To Prolong Its Impressive Returns

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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Insperity's (NYSE:NSP) trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Insperity:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.36 = US$250m ÷ (US$2.0b - US$1.4b) (Based on the trailing twelve months to December 2022).

So, Insperity has an ROCE of 36%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 12%.

See our latest analysis for Insperity

NYSE:NSP Return on Capital Employed March 16th 2023

In the above chart we have measured Insperity's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Insperity here for free.

How Are Returns Trending?

We'd be pretty happy with returns on capital like Insperity. Over the past five years, ROCE has remained relatively flat at around 36% and the business has deployed 102% more capital into its operations. Now considering ROCE is an attractive 36%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Insperity can keep this up, we'd be very optimistic about its future.

On a side note, Insperity's current liabilities are still rather high at 66% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

In summary, we're delighted to see that Insperity has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has followed suit returning a meaningful 84% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a separate note, we've found 1 warning sign for Insperity you'll probably want to know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Valuation is complex, but we're helping make it simple.

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