Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. But increasing competition from AI-driven upstarts has tempered enthusiasm, and over the past six months, the industry has pulled back by 3.3%. This performance was similar to the S&P 500’s decline.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here is one services stock poised to generate sustainable market-beating returns and two we’re steering clear of.
Two Business Services Stocks to Sell:
ASGN (ASGN)
Market Cap: $2.78 billion
Evolving from its roots in IT staffing to become a high-end technology consulting powerhouse, ASGN (NYSE: ASGN) provides specialized IT consulting services and staffing solutions to Fortune 1000 companies and U.S. federal government agencies.
Why Do We Think ASGN Will Underperform?
- Annual sales declines of 5.4% for the past two years show its products and services struggled to connect with the market during this cycle
- Sales are projected to be flat over the next 12 months and imply weak demand
- Sales were less profitable over the last two years as its earnings per share fell by 10.7% annually, worse than its revenue declines
At $63.02 per share, ASGN trades at 11.3x forward price-to-earnings. Read our free research report to see why you should think twice about including ASGN in your portfolio.
CBIZ (CBZ)
Market Cap: $4.01 billion
With over 120 offices across 33 states and a team of more than 6,700 professionals, CBIZ (NYSE: CBZ) provides accounting, tax, benefits, insurance brokerage, and advisory services to help small and mid-sized businesses manage their finances and operations.
Why Is CBZ Not Exciting?
- Earnings per share have contracted by 22.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Free cash flow margin shrank by 7.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- 10× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
CBIZ’s stock price of $75.86 implies a valuation ratio of 2.5x trailing 12-month price-to-sales. Check out our free in-depth research report to learn more about why CBZ doesn’t pass our bar.
One Business Services Stock to Buy:
Pure Storage (PSTG)
Market Cap: $14.43 billion
Founded in 2009 as a pioneer in enterprise all-flash storage technology, Pure Storage (NYSE: PSTG) provides all-flash data storage hardware and software that helps organizations manage their data more efficiently across on-premises and cloud environments.
Why Is PSTG a Top Pick?
- ARR growth averaged 24.8% over the past two years, showing customers are willing to take multi-year bets on its offerings
- Incremental sales over the last five years have been highly profitable as its earnings per share increased by 46.4% annually, topping its revenue gains
- Strong free cash flow margin of 16% enables it to reinvest or return capital consistently, and its rising cash conversion increases its margin of safety
Pure Storage is trading at $44.27 per share, or 25.1x forward price-to-earnings. 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
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 5 Strong Momentum 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
