Business services providers thrive by solving complex operational challenges for their clients, allowing them to focus on their secret sauce. Furthermore, the demand for their offerings is rising as more clients outsource non-core functions, a trend that has enabled the industry to return 14.2% over the past six months, almost identical to the S&P 500.
Regardless of these results, investors must exercise caution as many companies in this space are sensitive to the ebbs and flows of the broader economy. Keeping that in mind, here are two services stocks boasting durable advantages and one best left ignored.
One Business Services Stock to Sell:
Gartner (IT)
Market Cap: $10.32 billion
With over 2,500 research experts guiding organizations through complex technology landscapes, Gartner (NYSE: IT) provides research, advisory services, and conferences that help executives make better decisions about technology and other business priorities.
Why Does IT Fall Short?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
- 6.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Gartner is trading at $154.11 per share, or 11x forward P/E. To fully understand why you should be careful with IT, check out our full research report (it’s free).
Two Business Services Stocks to Watch:
Brink's (BCO)
Market Cap: $4.21 billion
Known for its iconic armored trucks that have been a fixture in American cities since 1859, Brink's (NYSE: BCO) provides secure transportation and management of cash and valuables for banks, retailers, and other businesses worldwide.
Why Could BCO Be a Winner?
- 7.3% annual revenue growth over the last five years surpassed the sector average as its services resonated with customers
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 15.5% exceeded its revenue gains over the last five years
- Free cash flow margin jumped by 4.7 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $102.33 per share, Brink's trades at 0.8x forward price-to-sales. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Huron (HURN)
Market Cap: $1.64 billion
Founded in 2002 during a time of significant regulatory change in corporate America, Huron Consulting Group (NASDAQ: HURN) is a professional services company that helps organizations develop growth strategies, optimize operations, and implement digital transformation solutions.
Why Are We Bullish on HURN?
- Market share has increased this cycle as its 15.9% annual revenue growth over the last five years was exceptional
- Share buybacks catapulted its annual earnings per share growth to 22.1%, which outperformed its revenue gains over the last two years
- Free cash flow margin increased by 6.7 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Huron’s stock price of $108.04 implies a valuation ratio of 1x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
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