The business process outsourcing industry is in demand across various sectors, including healthcare, BFSI, and IT & telecommunications, allowing businesses to focus on core activities and provide added value to customers.
So, investors could consider quality outsourcing stocks Startek, Inc. (SRT), The Brink’s Company (BCO), and ARC Document Solutions, Inc. (ARC) for solid gains this month.
The rising focus of enterprises on improving efficiency and organizations’ agility, reducing operating costs, and accelerating core competencies to survive the constantly changing business dynamics drive the growth of the business process outsourcing market.
The global business process outsourcing market is projected to expand at a CAGR of 9.4% from 2023 to 2030.
In addition, the tech outsourcing industry is evolving with the shift to cloud-based services, offering asset-free, on-demand IT solutions. Companies are focusing on cost optimization and adopting multi-cloud strategies to reduce risk. Moreover, the rising popularity of cloud computing in business process outsourcing is one of the prominent factors influencing the adoption of BPO services.
The IT Outsourcing market is expected to grow from $585.57 billion in 2023 to $701.88 billion by 2028, at a CAGR of 3.7%.
Considering these conducive trends, let's take a look at the fundamentals of the three best Outsourcing - Business Services stocks, starting with number 3.
Stock #3: Startek, Inc. (SRT)
SRT is a business process outsourcing company that provides customer experience, digital transformation, and technology services in various markets. The company primarily offers customer engagement, omnichannel engagement, social media, customer intelligence analytics, work-from-home, and back-office services.
In terms of forward non-GAAP P/E, ARC’s 8.56x is 50.5% lower than the 17.30x industry average. Its forward EV/Sales of 0.57x is 65.5% lower than the 1.65x industry average.
For the fiscal second quarter that ended June 30, 2023, SRT’s net revenue came in at $91.20 million. The company’s gross profit rose 5.7% year-over-year to $11.66 million and adjusted net income from continuing and discontinued operations amounted to $1.46 million and $0.04 per share.
Street expects SRT’s EPS and revenue to amount to $0.04 and $94.55 million in the fiscal third quarter ending September 2023.
Over the past month, the stock has gained 3.6% to close the last trading session at $3.21.
SRT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Sentiment and a B for Growth, Value, and Stability. It is ranked #11 among 42 stocks in the B-rated Outsourcing - Business Services industry.
In addition to the POWR Ratings stated above, one can access SRT’s Momentum and Quality ratings here.
Stock #2: The Brink’s Company (BCO)
BCO provides secure transportation, cash management, and other security-related services internationally. The company’s offerings include armored vehicle transportation of valuables, automated teller machine (ATM) management services, network infrastructure, and cash-in-transit services.
BCO’s forward non-GAAP P/E multiple of 10.76 is 37.8% lower than the 17.30x industry average. Its forward EV/Sales of 1.30x is 20.9% lower than the 1.65x industry average.
While BCO has a four-year average dividend yield of 1.12%, it pays an annual dividend of $0.88, which translates to a yield of 1.20% on the prevailing price level. The company has increased its dividend payments at a CAGR of 14.2% over the past three years.
BCO’s non-GAAP revenue increased 7% year-over-year to $1.22 billion in the second quarter of fiscal 2023. Its non-GAAP operating profit grew 6% from the year-ago quarter to $132 million. The company’s adjusted EBITDA rose 4% year-over-year to $194.30 million.
Analysts expect BCO’s revenue and EPS to rise 8.2% and 37.7% year-over-year to $1.23 billion and $1.85, respectively in the current fiscal quarter ending September 2023. The company has surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 47.9% over the past year and 39.6% year-to-date to close its last trading session at $73.47.
BCO’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
The stock also has a B grade for Growth, Quality, and Stability. It is ranked #2 in the same industry.
Beyond what we’ve stated above, we have also given BCO grades for Value, Momentum, and Sentiment. Get all the BCO ratings here.
Stock #1: ARC Document Solutions, Inc. (ARC)
ARC, a digital printing company, provides digital printing and document-related services in the United States. It provides managed print services, cloud-based document management software, and other digital hosting services.
In terms of forward non-GAAP P/E, ARC’s 10.97x is 36.6% lower than the 17.30x industry average. Its forward EV/Sales multiple of 1.65 is 60.5% lower than the 1.65x industry average.
On September 28, ARC announced that it purchased 303,174 shares of its own stock via open market transactions during the third quarter of 2023.
As noted earlier this year in April, ARC's Board of Directors authorized the expansion of the company's previous $15 million share repurchase program to $20 million through March 2026 to support ARC's commitment to return shareholder value.
ARC pays $0.20 annually, that translates to a dividend yield of 6.29% on the current market price, higher than the four-year average of 3.18%. The company has raised its dividend payouts at a CAGR of 115.4% over the past three years.
In the fiscal second quarter that ended June 30, 2023, ARC’s net sales amounted to 72.40 million. The company’s adjusted EBITDA came in at $11.10 million. Also, its adjusted EPS came in at $0.09, representing an increase of 12.5% year-over-year.
ARC’s EPS for fiscal year 2023 is expected to increase 3.6% year-over-year to $0.29.
Over the past year, the stock has gained 32.5% to close the last trading session at $3.18. The stock has soared 8.5% year-to-date.
ARC’s POWR Ratings reflect this robust outlook. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
In addition, it has an A grade for Value, Sentiment, and Quality and a B for Stability. It is ranked first in the same industry.
To see the other ratings of ARC for Growth and Momentum, click here.
What To Do Next?
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BCO shares were trading at $73.94 per share on Friday morning, up $0.47 (+0.64%). Year-to-date, BCO has gained 38.98%, versus a 14.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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