Business services providers use their specialized expertise to help enterprises streamline operations and cut costs. Furthermore, the demand for their offerings is rising as more clients outsource non-core functions, a trend that has enabled the industry to return 7.7% 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. With that said, here is one services stock poised to generate sustainable market-beating returns and two that may face trouble.
Two Business Services Stocks to Sell:
Baldwin Insurance Group (BWIN)
Market Cap: $1.80 billion
Rebranded from BRP Group in May 2024, Baldwin Insurance Group (NASDAQ: BWIN) is an independent insurance distribution company that provides tailored insurance, risk management, and employee benefits solutions to businesses and individuals.
Why Are We Cautious About BWIN?
- Adjusted operating margin was unchanged over the last five years, suggesting it failed to gain leverage on its fixed costs
- Free cash flow margin shrank by 5.1 percentage points over the last five years, suggesting the company stepped up its investments to maintain its competitive edge
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Baldwin Insurance Group’s stock price of $24.19 implies a valuation ratio of 10.7x forward P/E. Check out our free in-depth research report to learn more about why BWIN doesn’t pass our bar.
CoStar (CSGP)
Market Cap: $13.33 billion
With a research department that makes over 10,000 property updates daily to its 35-year-old database, CoStar Group (NASDAQ: CSGP) provides comprehensive real estate data, analytics, and online marketplaces for commercial and residential properties in the U.S. and U.K.
Why Are We Wary of CSGP?
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 1.6% annually
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 17.4 percentage points
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
CoStar is trading at $30.65 per share, or 20x forward P/E. Dive into our free research report to see why there are better opportunities than CSGP.
One Business Services Stock to Buy:
Arthur J. Gallagher (AJG)
Market Cap: $56.76 billion
Founded in 1927 and operating in approximately 130 countries through direct operations and correspondent networks, Arthur J. Gallagher (NYSE: AJG) provides insurance brokerage, reinsurance, consulting, and third-party claims settlement services to businesses and individuals worldwide.
Why Will AJG Beat the Market?
- Annual revenue growth of 19.1% over the last two years was superb and indicates its market share increased during this cycle
- Earnings growth has trumped its peers over the last five years as its EPS has compounded at 18.5% annually
- AJG is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
At $215.80 per share, Arthur J. Gallagher trades at 15.3x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
