A Small Cap Equity holding: Insight Enterprises, Inc. (NSIT, $93.56): “Continued Growth Insight” By: Will Steinhafel, AIM Student at Marquette University

 Insight Enterprises, Inc. (NSIT, $93.56): “Continued Growth Insight”

By: Will Steinhafel, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

• Insight Enterprises, Inc. (NASDAQ: NSIT) provides information technology, services, and cloud solutions to enterprises, governments, schools, and healthcare companies primarily in the United States, Europe, and Asia Pacific.
• NSIT beat Q2 2021 consensus earnings and revenue projections
• Although supply chain constraints remain, management expects materials sourcing and product backlogs to normalize in Q3 FY 2022
• Management is targeting SaaS and Infrastructure-as-a-service offerings to continue revenue growth and margin improvement
• Since being added to the AIM Small Cap fund, NSIT’s share price has increased 47%

Key points: On August 6, 2021, Insight Enterprises reported Q2 EPS of $1.91/share, beating consensus estimates of $1.87. Revenue also surpassed expectations at $2.23 billion, representing a 13.26% YoY increase. This impressive quarter was driven by strong hardware demand, as well as SaaS and Infrastructure-as-a-Service (IaaS) sales growing at high double digits during the quarter.

Despite ongoing supply constraints due to Covid-19 disruptions, management is confinement in Insight’s ability to continue to work with customers to forecast demand moving forward. In NSIT’s Q2 earnings call, management shared that they project over 50% of the company’s backlog will be shipped during Q3 FY21. NSIT’s supply chain and product pipeline is expected to normalize and return to healthy growth during the second half of FY 2022.

Insight is aiming to grow its cloud solutions business through the development and sales of SaaS and Infrastructure-as-a-service offerings. As previously mentioned, NSIT saw strong growth of these product lines during Q2, resulting in cloud gross profit increasing over 300 bps YoY to 22%. Management is dedicated to growing Insight’s cloud offerings moving forward to continue revenue growth and margin improvement.

What has the stock done lately?

Insight’s share price has remained relatively flat over the last month, with a -0.65% decrease during the period. NSIT beat Q2 FY21 consensus earnings by $0.04, reporting EPS of $1.91 representing a 9.14% YoY increase.

Past Year Performance:

Over the last year, NSIT’s share price has increased 47%. The 52-week high-low for NSIT has ranged from $107.27 to $52.63. As of Q2 FY21, Insight posted all time high LTM revenues of $8.65 billion. Since being added to the AIM Small Cap fund in September 2020, NSIT’s share price has increased 56%.     

Source: FactSet

My Takeaway

Since being added to the AIM Small Cap fund in September 2020, Insight Enterprises has well surpassed its price target of $87.86, however, the initial investment thesis remains intact. NSIT is poised to continue to benefit from increased demand as businesses look to shift to cloud-based solutions and modern technology infrastructure. As management focuses on SaaS and IaaS offerings, continued margin expansion can be expected due to decreased cost of goods sold. It is recommended that the AIM Small Cap fund continue to hold Insight Enterprises.

Source: FactSet