Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. These firms have helped their customers unlock huge efficiencies, so it’s no surprise the industry has posted a 9.9% gain over the past six months, beating the S&P 500 by 5 percentage points.
Nevertheless, investors should tread carefully as many companies in this space are cyclical due to their reliance on corporate spending budgets. Taking that into account, here are two resilient services stocks at the top of our wish list and one we’re passing on.
One Business Services Stock to Sell:
Everforth (EFOR)
Market Cap: $1.13 billion
Evolving from its roots in IT staffing to become a high-end technology consulting powerhouse, Everforth (EFOR) provides specialized IT consulting services and staffing solutions to Fortune 1000 companies and U.S. federal government agencies.
Why Are We Out on EFOR?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 3.7% annually over the last two years
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1%
- Earnings per share have contracted by 4.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
At $27.05 per share, Everforth trades at 6x forward P/E. To fully understand why you should be careful with EFOR, check out our full research report (it’s free).
Two Business Services Stocks to Watch:
EPAM (EPAM)
Market Cap: $5.42 billion
Founded in 1993 during the early days of offshore software development, EPAM Systems (NYSE: EPAM) provides digital engineering, cloud, and AI transformation services to help global enterprises and startups modernize their technology systems and create digital products.
Why Are We Positive on EPAM?
- Annual revenue growth of 14.8% over the past five years was outstanding, reflecting market share gains this cycle
- Earnings growth has comfortably beaten the peer group average over the last five years as its EPS has compounded at 12.2% annually
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
EPAM’s stock price of $105.07 implies a valuation ratio of 8x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
TaskUs (TASK)
Market Cap: $541.7 million
Starting as a virtual assistant service in 2008 before evolving into a global digital services provider, TaskUs (NASDAQ: TASK) provides outsourced digital services including customer experience management, content moderation, and AI data services to innovative technology companies.
Why Do We Like TASK?
- Market share has increased this cycle as its 18.1% annual revenue growth over the last five years was exceptional
- Free cash flow margin jumped by 19.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Historical investments are beginning to pay off as its returns on capital are growing
TaskUs is trading at $5.98 per share, or 4.8x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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