Business services providers thrive by solving complex operational challenges for their clients, allowing them to focus on their secret sauce. Still, investors are uneasy as firms face challenges from AI-driven disruptors and tightening corporate budgets. These doubts have caused the industry to lag recently as services stocks were flat over the past six months. A consolation is that the S&P 500 hasn’t budged either.

While some companies have durable competitive advantages that enable them to grow in any landscape, the odds aren’t great for the ones we’re analyzing today. With that said, here are three services stocks best left ignored.

Benchmark (BHE)

Market Cap: $1.48 billion

Operating as a critical behind-the-scenes partner for complex technology products since 1979, Benchmark Electronics (NYSE: BHE) provides advanced manufacturing, engineering, and technology solutions for original equipment manufacturers across aerospace, medical, industrial, and technology sectors.

Why Do We Pass on BHE?

1. Annual sales declines of 4.1% for the past two years show its products and services struggled to connect with the market during this cycle
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.6% for the last five years
3. Underwhelming 7.2% return on capital reflects management’s difficulties in finding profitable growth opportunities

At $41.07 per share, Benchmark trades at 16.9x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than BHE.

Knowles (KN)

Market Cap: $1.44 billion

With roots dating back to 1946 and a focus on components that must perform flawlessly in critical situations, Knowles (NYSE: KN) designs and manufactures specialized electronic components like high-performance capacitors, microphones, and speakers for medical technology, defense, and industrial applications.

Why Should You Dump KN?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.7% annually over the last four years
2. Sales are projected to tank by 14.3% over the next 12 months as its demand continues evaporating
3. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term

Knowles is trading at $16.63 per share, or 14.7x forward price-to-earnings. Check out our free in-depth research report to learn more about why KN doesn’t pass our bar.

CRA (CRAI)

Market Cap: $1.22 billion

Often retained for high-stakes matters with multibillion-dollar implications, CRA International (NASDAQ: CRAI) provides economic, financial, and management consulting services to corporations, law firms, and government agencies for litigation, regulatory proceedings, and business strategy.

Why Do We Think Twice About CRAI?

1. Modest revenue base of $687.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies
2. Estimated sales decline of 1.2% for the next 12 months implies a challenging demand environment
3. Free cash flow margin shrank by 2.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

CRA’s stock price of $179.09 implies a valuation ratio of 23.7x forward price-to-earnings. Read our free research report to see why you should think twice about including CRAI in your portfolio.

Stocks We Like More

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.