Business services providers use their specialized expertise to help enterprises streamline operations and cut costs. These firms have helped their customers unlock huge efficiencies, so it’s no surprise the industry has posted a 24.6% gain over the past six months, nearly mirrorring the S&P 500.
Nevertheless, investors should tread carefully as many companies in this space are cyclical due to their reliance on corporate spending budgets. Keeping that in mind, here are two services stocks boasting durable advantages and one best left ignored.
One Business Services Stock to Sell:
Kyndryl (KD)
Market Cap: $6.56 billion
Born from IBM's managed infrastructure services business in a 2021 spinoff, Kyndryl (NYSE: KD) is the world's largest IT infrastructure services provider that designs, builds, and manages technology environments for enterprise customers.
Why Are We Wary of KD?
- Sales tumbled by 4.6% annually over the last five years, showing market trends are working against its favor during this cycle
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Negative returns on capital show that some of its growth strategies have backfired
Kyndryl is trading at $28.04 per share, or 11.1x forward P/E. To fully understand why you should be careful with KD, check out our full research report (it’s free for active Edge members).
Two Business Services Stocks to Watch:
CECO Environmental (CECO)
Market Cap: $1.71 billion
With roots dating back to 1869 and a focus on creating cleaner industrial operations, CECO Environmental (NASDAQ: CECO) provides technology and expertise that helps industrial companies reduce emissions, treat water, and improve energy efficiency across various sectors.
Why Is CECO a Good Business?
- Annual revenue growth of 19% over the last two years was superb and indicates its market share increased during this cycle
- Expected revenue growth of 17.9% for the next year suggests its market share will rise
- Adjusted operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
CECO Environmental’s stock price of $48.10 implies a valuation ratio of 33.5x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.
Accenture (ACN)
Market Cap: $153.6 billion
With a workforce of approximately 774,000 people serving clients in more than 120 countries, Accenture (NYSE: ACN) is a professional services firm that helps organizations transform their businesses through consulting, technology, operations, and digital services.
Why Are We Fans of ACN?
- Annual revenue growth of 9.5% over the past five years was outstanding, reflecting market share gains this cycle
- Unparalleled revenue scale of $69.67 billion gives it an edge in distribution
- Industry-leading 39.5% return on capital demonstrates management’s skill in finding high-return investments
At $248.02 per share, Accenture trades at 18x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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