Over the past six months, Inspired’s stock price fell to $9.34. Shareholders have lost 6.8% of their capital, which is disappointing considering the S&P 500 has climbed by 5%. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Inspired, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Inspired Not Exciting?
Even though the stock has become cheaper, we're swiping left on Inspired for now. Here are three reasons why you should be careful with INSE and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Inspired grew its sales at a 11.5% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Inspired’s revenue to stall, close to its 11.5% annualized growth for the past five years. This projection is underwhelming and indicates its newer products and services will not lead to better top-line performance yet.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Inspired has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.5%, lousy for a consumer discretionary business.
Final Judgment
Inspired’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 2.5× forward EV-to-EBITDA (or $9.34 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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