Business services providers thrive by solving complex operational challenges for their clients, allowing them to focus on their secret sauce. Furthermore, the demand for their offerings is rising as more clients outsource non-core functions, a trend that has enabled the industry to return 16.9% over the past six months, almost identical to 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 resilient services stock at the top of our wish list and two we’re swiping left on.

Two Business Services Stocks to Sell:

CSG (CSGS)

Market Cap: $1.80 billion

Powering billions of critical customer interactions annually, CSG Systems (NASDAQ: CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.

Why Are We Out on CSGS?

1. 2.6% annual revenue growth over the last two years was slower than its business services peers
2. Revenue base of $1.21 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

CSG’s stock price of $65.74 implies a valuation ratio of 13.4x forward P/E. If you’re considering CSGS for your portfolio, see our FREE research report to learn more.

Insperity (NSP)

Market Cap: $2.04 billion

Pioneering the professional employer organization (PEO) industry it helped establish, Insperity (NYSE: NSP) provides human resources outsourcing services to small and medium-sized businesses, handling payroll, benefits, compliance, and HR administration.

Why Are We Cautious About NSP?

1. Muted 3.2% annual revenue growth over the last two years shows its demand lagged behind its business services peers
2. Earnings per share fell by 13% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $54.23 per share, Insperity trades at 17x forward P/E. Check out our free in-depth research report to learn more about why NSP doesn’t pass our bar.

One Business Services Stock to Watch:

Booz Allen Hamilton (BAH)

Market Cap: $12.8 billion

With roots dating back to 1914 and deep ties to nearly all U.S. cabinet-level departments, Booz Allen Hamilton (NYSE: BAH) provides management consulting, technology services, and cybersecurity solutions primarily to U.S. government agencies and military branches.

Why Are We Fans of BAH?

1. Core business is healthy and doesn’t need acquisitions to boost sales as its organic revenue growth averaged 10.7% over the past two years
2. Economies of scale give it some operating leverage when demand rises
3. Share repurchases over the last five years enabled its annual earnings per share growth of 14.6% to outpace its revenue gains

Booz Allen Hamilton is trading at $105 per share, or 15.8x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

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