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 9.7% gain for the industry over the past six months - 3.3 percentage points higher than the S&P 500.
Although these companies have produced results, only a handful will thrive over the long term as AI-driven upstarts are rapidly taking share from the incumbents. Keeping that in mind, here is one services stock poised to generate sustainable market-beating returns and two that may face trouble.
Two Business Services Stocks to Sell:
PAR Technology (PAR)
Market Cap: $603 million
Originally founded in 1968 as a defense contractor for the U.S. government, PAR Technology (NYSE: PAR) provides cloud-based software, payment processing, and hardware solutions that help restaurants manage everything from point-of-sale to customer loyalty programs.
Why Is PAR Not Exciting?
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Negative returns on capital show that some of its growth strategies have backfired
PAR Technology’s stock price of $14.53 implies a valuation ratio of 19.8x forward P/E. To fully understand why you should be careful with PAR, check out our full research report (it’s free).
Rumble (RUM)
Market Cap: $2.56 billion
Founded in 2013 as a champion for content creator rights and free expression, Rumble (NASDAQ: RUM) is a video sharing platform that positions itself as a free speech alternative to mainstream platforms, offering creators more favorable revenue-sharing opportunities.
Why Does RUM Give Us Pause?
- Revenue base of $102.4 million indicates it’s still subscale compared to its larger peers (though this creates opportunities to expand into untapped markets)
- Negative free cash flow raises questions about the return timeline for its investments
- Negative earnings profile makes it challenging to secure favorable financing terms from lenders
Rumble is trading at $7.57 per share, or 17.8x trailing 12-month price-to-sales. If you’re considering RUM for your portfolio, see our FREE research report to learn more.
One Business Services Stock to Buy:
QuinStreet (QNST)
Market Cap: $700.3 million
Founded during the dot-com era in 1999 and specializing in high-intent consumer traffic, QuinStreet (NASDAQ: QNST) operates digital performance marketplaces that connect clients in financial and home services with consumers actively searching for their products.
Why Should You Buy QNST?
- Annual revenue growth of 47.2% over the last two years was superb and indicates its market share increased during this cycle
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 628% outpaced its revenue gains
- Improving returns on capital suggest its past investments are beginning to deliver value
At $11.90 per share, QuinStreet trades at 8.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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