Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. But cutbacks in corporate spending and the threat of new AI products have kept sentiment in check, and over the past six months, the industry has tumbled by 1.9%. This drawdown was almost identical to the S&P 500’s decline.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here is one resilient services stock at the top of our wish list and two we’re passing on.
Two Business Services Stocks to Sell:
IAC (IAC)
Market Cap: $3.91 billion
Originally known as InterActiveCorp and built through Barry Diller's strategic acquisitions since the 1990s, IAC (NASDAQ: IAC) operates a portfolio of category-leading digital businesses including Dotdash Meredith, Angi, and Care.com, focusing on digital publishing, home services, and caregiving platforms.
Why Does IAC Worry Us?
- Annual sales declines of 14.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share have contracted by 72.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Push for growth has led to negative returns on capital, signaling value destruction
At $46.95 per share, IAC trades at 21.1x forward price-to-earnings. Check out our free in-depth research report to learn more about why IAC doesn’t pass our bar.
NetApp (NTAP)
Market Cap: $18.77 billion
Founded in 1992 as a pioneer in networked storage technology, NetApp (NASDAQ: NTAP) provides data storage and management solutions that help organizations store, protect, and optimize their data across on-premises data centers and public clouds.
Why Are We Hesitant About NTAP?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Flat billings over the past two years suggest it may need to improve its products, pricing, or go-to-market strategy to reinvigorate demand
- Anticipated sales growth of 4% for the next year implies demand will be shaky
NetApp’s stock price of $92.26 implies a valuation ratio of 11.9x forward price-to-earnings. To fully understand why you should be careful with NTAP, check out our full research report (it’s free).
One Business Services Stock to Watch:
WEBTOON (WBTN)
Market Cap: $1.11 billion
Pioneering a vertical-scrolling format optimized for mobile devices, WEBTOON Entertainment (NASDAQ: WBTN) operates a global platform where creators publish serialized web-comics and web-novels that users can read in bite-sized episodes.
Why Does WBTN Stand Out?
- Annual revenue growth of 11.8% over the past two years was outstanding, reflecting market share gains this cycle
- Estimated revenue growth of 9.5% for the next 12 months implies its momentum over the last two years will continue
- Earnings per share grew by 107% annually over the last one years and trumped its peers
WEBTOON is trading at $8.74 per share, or 9x forward EV-to-EBITDA. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.
