This Company Can Help Fix the Job-Switching Crisis

Employee turnover is on the rise... And businesses are scrambling to keep up.  

About 50.5 million folks quit their jobs last year, up from 47.8 million in 2021. Aside from a brief dip in 2020, that number has risen steadily every year since 2009. And turnover soared as the world reopened following COVID-19.

All of that job-switching has taken a toll on productivity.

When controlled, employee turnover isn't always bad. It can actually be a good thing. Consistent turnover ensures that people can find the best jobs for them. Employers can also select the best candidates.

However, it's all about balance... And that's not what we're seeing today. Companies are in a constant cycle of hiring and training. It costs them a lot of money and means less work gets done.

Today, we'll examine a company in a unique position to help fix this productivity issue. Investors don't recognize just how essential it is to the future of the economy. That could mean lots of upside for those who get in early...

Above all, one thing is key to offsetting turnover...

We're talking about training employees.

Training employees can be slow and costly. And yet, it's critically important. Untrained employees aren’t nearly as productive, and they can pose safety and legal risks to companies.

In the long run, training employees is valuable. The costs add up when workers are leaving frequently.

And when small businesses need help managing their employees, they turn to Insperity (NSP).

Insperity is a human resources ("HR") software company specifically designed for small and midsized businesses. Its goal is to free up time that would've been spent on payroll, benefits management, and even training.

One of Insperity's top solutions is called professional employer organization ("PEO") HR outsourcing. It helps make smaller businesses more productive by making training a lot more efficient.

Employers usually have to spend a long time training new hires on basic safety, technology, and professional behavior policies. Insperity handles all of that for them.

Plus, employers can track the performance of new hires on the software.

Insperity offers resources that its customers can use to enhance the training process for their workers. It even provides certification support for IT and business professionals.

COVID-19 and soaring employee turnover have been hard on most businesses. They've been great for Insperity.

In 2019, the company made about $4.3 billion in sales. Last year, it made almost $6 billion. That's 38% revenue growth... during the pandemic.

It's clear that small businesses need Insperity...

What's more, the company is positioned for future success.

Insperity wants to reach 10% of small businesses with its software... and we don't think that's unreasonable. Businesses want to do whatever they can to offset high turnover rates and increase productivity.

However, not everyone thinks this way. Even with the tailwinds we discussed for Insperity, the market isn't confident in the company's future.

We can see this through our Embedded Expectations Analysis ("EEA") framework. It uses Uniform Accounting to determine what investors expect based on the current stock price.

Insperity's Uniform return on assets ("ROA") increased from 15% in 2014 to 40% in 2021. As-reported ROA only rose from 6% to 7% during the same time period. (It "popped" to 8% in 2020.)

The EEA shows us that the market expects Insperity's future performance to falter. Investors think Uniform ROA will fall to 29% by 2026. That would be its lowest return since 2017.

Take a look...

Investors don't seem to recognize just how great of a business Insperity is...

That's probably because its as-reported numbers aren't improving. However, Uniform ROA has spiked in recent years because of high demand.

We expect that trend to continue as businesses look to offset rising turnover.

Wall Street analysts feel the same way. They think Insperity's Uniform ROA will surpass 50% for the 2022 and 2023 fiscal years. They understand that the market isn't accounting for the growth potential of Insperity's services.

Insperity is already on the right track. Its ROA has been climbing for years. If it can keep that momentum, investors will realize their mistake. This company could have a lot of upside going forward.

Regards,

Joel Litman
February 15, 2023