Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. But cutbacks in corporate spending and the threat of new AI products have kept sentiment in check, and over the past six months, the industry has tumbled by 6.6%. This drop was worse than the S&P 500’s 2.1% loss.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one services stock boasting a durable advantage and two we’re swiping left on.
Two Business Services Stocks to Sell:
Alight (ALIT)
Market Cap: $288.7 million
Born from a corporate spinoff in 2017 to focus on employee experience technology, Alight (NYSE: ALIT) provides human capital management solutions that help companies administer employee benefits, payroll, and workforce management systems.
Why Should You Dump ALIT?
- Annual sales declines of 3.7% for the past five years show its products and services struggled to connect with the market during this cycle
- Performance over the past two years was negatively impacted by new share issuances as its earnings per share dropped by 16.1% annually, worse than its revenue
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $0.57 per share, Alight trades at 1.9x forward P/E. Check out our free in-depth research report to learn more about why ALIT doesn’t pass our bar.
Aramark (ARMK)
Market Cap: $11.18 billion
From serving hot dogs at major league stadiums to managing college dining halls that feed thousands daily, Aramark (NYSE: ARMK) provides food services and facilities management to schools, healthcare facilities, businesses, sports venues, and correctional institutions across 16 countries.
Why Is ARMK Not Exciting?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.2% for the last five years
Aramark’s stock price of $42.56 implies a valuation ratio of 18.1x forward P/E. Dive into our free research report to see why there are better opportunities than ARMK.
One Business Services Stock to Buy:
OSI Systems (OSIS)
Market Cap: $4.42 billion
With security scanners deployed at airports and borders worldwide and patient monitors used in hospitals across the globe, OSI Systems (NASDAQ: OSIS) designs and manufactures specialized electronic systems for security screening, patient monitoring, and optoelectronic applications.
Why Should You Buy OSIS?
- Annual revenue growth of 14.7% over the past two years was outstanding, reflecting market share gains this cycle
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Free cash flow margin grew by 4.5 percentage points over the last five years, giving the company more chips to play with
OSI Systems is trading at $268.13 per share, or 24x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
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