Insight Enterprises, Inc: Stock 10% Below Record, But Much More to Come

Insight Enterprises, Inc Stock 10% Below Record But Much More to Come
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Insight Enterprises: A Holdout from the Technology Crash of 2000

I recalled the crazy euphoric and often reckless buying momentum that encapsulated the stock market in late 1999 prior to the meltdown in 2000.

It took the Nasdaq a long time to recover its initial losses from those dark days. But here we are two decades later and the technology sector remains the top growth area for traders.

Many companies survived the crash, while many others have disappeared.

A technology services company that emerged from the mess is Insight Enterprises, Inc. (NASDAQ:NSIT), a provider of IT solutions to companies worldwide. Insight services small- and medium-sized enterprises, large global companies, governments, schools, and healthcare facilities.

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While the U.S. is the major market, Insight has expanded into over 20 countries including those in Europe, the Middle East, and Africa, and a marginal presence in the Asia-Pacific.

The fact that Insight Enterprises, Inc. generated $7.08 billion in revenues in 2018 but has a market valuation of less than $2.0 billion provides an intriguing opportunity.

Insight stock is trading at 10% below its record $60.09 on May 1, easily outperforming the S&P 500 and Nasdaq.

At this point, NSIT stock is drifting in a sideways channel, but given the rapid price appreciation, the stock is vulnerable to an adjustment down towards $50.00.

Chart courtesy of StockCharts.com

My Fundamental Bull Thesis for NSIT stock

Insight is ratcheting up its growth in revenues, earnings, and free cash flow (FCF).

Revenues have edged higher in five consecutive years from $5.32 billion in 2014 to a record $7.08 billion in 2018.

Fiscal Year Revenue ($Millions) Growth
2014 $5.32 3.3%
2015 $5.37 1.1%
2016 $5.49 2.1%
2017 $6.70 22.1%
2018 $7.08 5.6%

(Source: “Insight Enterprises,” MarketWatch, last accessed May 24, 2019.)

But there are some concerns, as the revenue growth rate is expected to slide lower.

Insight is estimated to report revenue growth of only 1.9% to $7.21 billion in 2019 and 3.2% to $7.44 billion in 2020. (Source: “Insight Enterprises, Inc. (NSIT),” Yahoo! Finance, last accessed May 24, 2019.)

A positive is that Insight Enterprises, Inc. is doing a great job on the cost side, with earnings before interest, taxes, depreciation, and amortization (EBITDA); generally accepted accounting principles (GAAP); and adjusted profits growing at a faster pace than revenues.

Insight is EBITDA-positive, with growth in the last three years, including a record five-year high of $274.65 million in 2018.

Fiscal Year EBITDA ($Millions) Growth
2014 $181.18 3.2%
2015 $170.18 -6.1%
2016 $193.45 13.7%
2017 $237.84 22.9%
2018 $274.65 15.5%

(Source: MarketWatch, op cit.)

GAAP earnings have increased in five straight years, including an impressive $4.55 per diluted share in 2018, up 81.5% compared to 2017.

Fiscal Year GAAP Diluted EPS Growth
2014 $1.83 11.6%
2015 $1.98 8.2%
2016 $2.32 17.2%
2017 $2.50 8.0%
2018 $4.55 81.5%

(Source: Ibid.)

After adjustments, Insight Enterprises, Inc. reported $4.63 per diluted share in 2018. The consensus estimates call for NSIT stock to earn $4.82 per diluted share in 2019 and $5.12 per diluted share in 2020. (Source: Yahoo! Finance, op cit.)

Insight has been largely FCF-positive over the last five years, except for a negative reading in 2017 due to acquisitions.

Impressive was the 185% surge in FCF to $275.40 million in 2018.

Fiscal Year FCF ($Millions)
2014 $100.34
2015 $167.09
2016 $83.54
2017 -$324.56
2018 $275.50

(Source: MarketWatch, op cit.)

Analyst Take

Insight Enterprises, Inc. looks like a compelling investment, trading at 10.6 times its consensus 2020 earnings per share and a price-earnings-to-growth ratio of 1.57.

If Insight can strengthen its revenue picture, Insight stock could move to higher levels, supported by a cheap multiple.

For instance, NSIT stock could rise by 50% and its multiple still wouldn’t be excessive.