Inspired’s stock price has taken a beating over the past six months, shedding 25.2% of its value and falling to $6.81 per share. This might have investors contemplating their next move.

Is there a buying opportunity in Inspired, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Despite the more favorable entry price, we don't have much confidence in Inspired. Here are three reasons why you should be careful with INSE and a stock we'd rather own.

Why Is Inspired Not Exciting?

Specializing in digital casino gaming, Inspired (NASDAQ:INSE) is a provider of gaming hardware, virtual sports platforms, and server-based gaming systems.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Inspired grew its sales at a 14.3% compounded annual growth 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 Is Slim

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 rise by 1.9%, close to its 3.1% annualized growth for the past two years. This projection is underwhelming and indicates its newer products and services will not catalyze better top-line performance yet.

3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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 1.8%, lousy for a consumer discretionary business.

Final Judgment

Inspired isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 14.1× forward price-to-earnings (or $6.81 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.

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