Editor's Note: Our Industrials analyst Jay Van Sciver added Insperity (NSP) as a best short idea on 3/18/19. Shares were trading around $124 at the time. Shares are down significantly trading around $72 today.
As Van Sciver wrote this morning:
"Insperity didn’t handle the miss/guide-down well. With the shares at our initial return expectation, we’ll take the win and pull it from the Best Ideas Short list ... Since adding NSP in March of this year, the shares are down more than 40%, shedding much of their valuation premium, lagging the S&P by more than 50%."
Below is what Van Sciver wrote on 3/18 outlining his concerns about the company when he initially made the call.
Shares of Insperity are trading as though the PEO industry isn’t cyclical and increasingly mature. The cyclical elements extend beyond employment trends to costs, regulations, and marketing.
The industry has enjoyed exceptional tailwinds in recent years, while limited Street coverage, arcane business metrics, and a move up in index membership have left the shares untethered to underlying business realities. With steep comps, intensifying competition, slowing growth, and a lack of incremental tailwinds, investors will likely be just as surprised by the cyclical downside as they were by the post-GFC recovery.
We see greater than 50% downside in the shares, with catalysts positioned through 2020.
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