Business services providers use their specialized expertise to help enterprises streamline operations and cut costs. Market leaders have certainly capitalized on outsourcing trends and digital transformation initiatives to boost sales, helping fuel a 15% gain for the industry over the past six months - 7.3 percentage points higher than 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. On that note, here are two services stocks boasting durable advantages and one we’re passing on.
One Business Services Stock to Sell:
Rogers (ROG)
Market Cap: $2.61 billion
With roots dating back to 1832, making it one of America's oldest continuously operating companies, Rogers (NYSE: ROG) designs and manufactures specialized engineered materials and components used in electric vehicles, telecommunications, renewable energy, and other high-performance applications.
Why Do We Steer Clear of ROG?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 4.7 percentage points
- Earnings per share have contracted by 13.9% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
At $130.50 per share, Rogers trades at 34.6x forward P/E. To fully understand why you should be careful with ROG, check out our full research report (it’s free).
Two Business Services Stocks to Watch:
CRA (CRAI)
Market Cap: $954.5 million
Often retained for high-stakes matters with multibillion-dollar implications, CRA International (NASDAQ: CRAI) provides economic, financial, and management consulting services to corporations, law firms, and government agencies for litigation, regulatory proceedings, and business strategy.
Why Are We Fans of CRAI?
- Market share has increased this cycle as its 9.5% annual revenue growth over the last two years was exceptional
- Share buybacks catapulted its annual earnings per share growth to 15.5%, which outperformed its revenue gains over the last five years
- Industry-leading 18.4% return on capital demonstrates management’s skill in finding high-return investments
CRA is trading at $153.72 per share, or 17.3x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Huron (HURN)
Market Cap: $1.62 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 Will HURN Outperform?
- Market share has increased this cycle as its 15.9% annual revenue growth over the last five years was exceptional
- Share repurchases over the last two years enabled its annual earnings per share growth of 22.1% to outpace its revenue gains
- Free cash flow margin jumped by 6.7 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Huron’s stock price of $103.07 implies a valuation ratio of 11.8x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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