TICKER: TNET

FINANCIAL REPORT: CLICK HERE

TriNet is undervalued at the moment and has long-term potential to grow given that the majority of the SMB market is currently not being served. TriNet has seen consistent growth in revenues from both the insurance services and professional services revenue. TriNet's position as a leader in an underserved market presents opportunity to make key strategic acquisitions while diving into new serviceable industries. The stock is undervalued at a P/E ratio of 19.2 and its P/S ratio of 1.22.

Business Model

TriNet provides a variety of services for small and mid-sized businesses, acting as a HR services company. This includes offering services for health insurance and workers compensation programs, payroll, employee data and compliance consulting. Being a market leader, TriNet can leverage its brand and variety of offerings to help businesses become more efficient while focusing on their own long-term goals. Despite the pandemic, TriNet has helped their clients by offering tailored resources, signifying that the company can adapt as a service provider under any circumstances.

Strong Growth Potential

TriNet currently has $1.75 billion in cash compared to $397 million in interest bearing debt. This is prioritised to reinvest in the business, target potential acquisitions and share buybacks. The next few quarters give the opportunity to TriNet to potentially acquire technologies that significantly improve its product offering either vertically or horizontally, especially if the acquired company is in financial distress. TriNet wants to cater to SMBs in all types of industries, and the company recently acquired Little Bird HR, which is a private firm based on the East Coast of the United States that is focused on the education industry. TriNet has acquired 5 companies in the last decade of which 3 have been integrated into the platform. TriNet understands that different industries are looking for tailored solutions, and SMB owners want to work with Personal Employer Organisations (PEOs) that have an understanding of the big picture. By continuing the expansion of its vertical offerings, TriNet creates a competitive advantage within that specific industry, which in turn increases the total serviceable obtainable market. The company has also been aggressively reducing debt while increasing its liquidity position.

TriNet solves defined problems that SMBs face, and these issues are not disappearing anytime soon. SMBs must comply with tons of different regulations at all local and federal levels and are subject to hefty fines if the rules are not adhered to. The recent pandemic has amplified this situation, especially as more companies operate out of different jurisdictions given the increase of remote work. It may be harder to manage operational and insurance solutions virtually, especially because SMBs would usually pay multiple vendors and employees for such services. Therefore, TriNet could acquire new businesses because of its diversified portfolio of service offerings.

Investment Risks

The financial performances of SMBs are much more volatile compared to mature and large companies. Therefore, TriNet's ability to retain and gain new business is largely dependent on the macroeconomic environment. Moreover, insurance claims associated with TriNet's clients' employees could increase costs for the company, which in turn could have a material effect on the business. TriNet's insurance business could also be affected if suppliers decide to change options and insurance rates. TriNet also faces unpredictable demand and potential termination of services from its clients, which is independent of TriNet's business performance.

FINANCIAL ANALYSIS: CLICK HERE