Business services providers thrive by solving complex operational challenges for their clients, allowing them to focus on their secret sauce. 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 1.1%. This drawdown was disheartening since the S&P 500 held steady.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Taking that into account, here is one services stock boasting a durable advantage and two we’re passing on.
Two Business Services Stocks to Sell:
Sinclair (SBGI)
Market Cap: $1.11 billion
With over 2,400 hours of local news produced weekly and 640 broadcast channels reaching millions of American homes, Sinclair (NASDAQ: SBGI) operates a network of 185 local television stations across 86 U.S. markets, producing news programming and distributing content from major networks.
Why Should You Sell SBGI?
- Annual sales declines of 3.5% for the past five years show its products and services struggled to connect with the market during this cycle
- Sales are projected to tank by 10.5% over the next 12 months as its demand continues evaporating
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.8 percentage points
At $16.76 per share, Sinclair trades at 2.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SBGI doesn’t pass our bar.
Connection (CNXN)
Market Cap: $1.64 billion
Starting as a small computer products seller in 1982 and evolving into a Fortune 1000 company, Connection (NASDAQ: CNXN) is a technology solutions provider that helps businesses and government agencies design, purchase, implement, and manage their IT infrastructure and systems.
Why Do We Think CNXN Will Underperform?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.3% annually over the last two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Low free cash flow margin of 3.2% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Connection’s stock price of $62.82 implies a valuation ratio of 17.5x forward price-to-earnings. Read our free research report to see why you should think twice about including CNXN in your portfolio.
One Business Services Stock to Buy:
Copart (CPRT)
Market Cap: $53.71 billion
Starting as a single salvage yard in California in 1982, Copart (NASDAQ: CPRT) operates an online auction platform that connects sellers of damaged and salvage vehicles with buyers ranging from dismantlers and rebuilders to used car dealers and exporters.
Why Do We Love CPRT?
- Market share has increased this cycle as its 15.2% annual revenue growth over the last five years was exceptional
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 18.3% over the last five years outstripped its revenue performance
- CPRT is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its recently improved profitability means it has even more resources to invest or distribute
Copart is trading at $53.58 per share, or 33.6x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat by checking out our Top 9 Market-Beating Stocks. 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 Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
