Business services providers thrive by solving complex operational challenges for their clients, allowing them to focus on their secret sauce. Still, investors are uneasy as firms face challenges from AI-driven disruptors and tightening corporate budgets. These doubts have certainly contributed to services stocks’ recent underperformance - over the past six months, the industry’s 1.5% gain has fallen behind the S&P 500’s 5.1% rise.
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:
ICF International (ICFI)
Market Cap: $1.34 billion
Operating at the intersection of policy, technology, and implementation for over five decades, ICF International (NASDAQ: ICFI) provides professional consulting services and technology solutions to government agencies and commercial clients across energy, health, environment, and security sectors.
Why Should You Sell ICFI?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 7.4% declines over the past two years
- Estimated sales growth of 2.2% for the next 12 months is soft and implies weaker demand
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 2% annually
ICF International’s stock price of $73.06 implies a valuation ratio of 10x forward P/E. Read our free research report to see why you should think twice about including ICFI in your portfolio.
Connection (CNXN)
Market Cap: $1.59 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 Is CNXN Risky?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 3.3% annually
- Low free cash flow margin of 3.3% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Connection is trading at $63.22 per share, or 16.9x forward P/E. Dive into our free research report to see why there are better opportunities than CNXN.
One Business Services Stock to Watch:
NetApp (NTAP)
Market Cap: $19.8 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 Does NTAP Stand Out?
- Average billings growth of 7.6% over the past two years enhances its liquidity and shows there is steady demand for its products
- Adjusted operating margin improvement of 5.4 percentage points over the last five years demonstrates its ability to scale efficiently
- Robust free cash flow margin of 19.4% gives it many options for capital deployment, and its rising cash conversion increases its margin of safety
At $100.57 per share, NetApp trades at 11.8x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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