With the growing demand for professional outsourcing, business process outsourcing (BPO), knowledge process outsourcing, and recruitment process outsourcing (RPO) across multiple end-use industries, the outsourcing sector is booming. Further, the rapid adoption of cutting-edge technologies has created new growth opportunities for service providers.
Considering the industry’s tailwinds, fundamentally sound outsourcing stocks American Public Education, Inc. (APEI), ARC Document Solutions, Inc. (ARC), and Hudson Global, Inc. (HSON) could be ideal buys for substantial returns.
Industries like IT, communications & media, healthcare, financial services, education, and retail in the United States and globally have observed high demand for different types of outsourcing services in recent years. The global business process outsourcing is projected to reach $525.20 billion, expanding at a CAGR of 9.4% from 2023 to 2030.
BPO services witness significant demand across several end-use sectors due to their vast benefits, including enhanced flexibility, lower operating costs, and improved service quality. Moreover, these services enable businesses to refocus on their core business activities to deliver incremental value to their customers.
Innovative digital technologies like Artificial Intelligence (AI), Machine learning (ML), cloud computing, Robotic Process Automation (RPA), and low-code development platforms will further experience increased adoption in the BPO industry to streamline and enhance back- and front-end operations.
Learning services outsourcing ranges from delivering training courses and resources to overseeing employee learning programs. The prevalence of this outsourcing segment comes from its cost-effectiveness while businesses still deliver quality training and development programs to employees.
As per a report by Cognitive Market Research, the global learning services outsourcing market is projected to expand at a CAGR of 5.6% from 2023 to 2030.
Furthermore, the increasing attrition rate across various industries is driving the demand for RPO services. Lately, service providers are implementing advanced technologies such as AI and ML for self-scheduling interviews and automated screening of CVs. They further channel better candidate engagement via chatbots and other assessment tools.
The global recruitment process outsourcing market is anticipated to total $24.32 billion by 2030, growing at a CAGR of 16.1%. Meanwhile, the U.S. recruitment process outsourcing market is projected to expand at a 14% CAGR from 2023 to 2030.
Given these favorable industry trends, investing in quality outsourcing stocks APEI, ARC, and HSON could be wise for solid returns.
Let’s discuss the fundamentals of these stocks in detail:
American Public Education, Inc. (APEI)
APEI offers online and campus-based postsecondary education and career learning. The company operates in three segments: American Public University System; Rasmussen University; and Hondros College of Nursing. It provides 136 degree programs and 115 certificate programs in various fields of study, like nursing, public health, public administration, and business administration.
On December 7, 2023, APEI’s American Public University System (APUS) announced that it would offer an accelerated Bachelor of Science Degree in Cybersecurity in connection with the College in 3 Exchange.
“We are excited to be among the first universities to offer a 90-credit bachelor's degree under this innovative approach with the College in 3 Exchange,” said Dr. Elizabeth Johnson, APUS Provost. “We know that time and money are the biggest barriers to students completing their degrees, and simply put, our accelerated cybersecurity degree will reduce both by 25 percent.”
On November 21, APEI’s Rasmussen University announced its prelicensure nursing programs in Mankato and St. Cloud. The Practical Nursing Diploma and Professional Nursing Associates’ degree programs have earned continuing accreditation for eight years. These accreditation milestones reflect Rasmussen’s commitment to meeting rigorous education standards.
Also, on November 15, American Public University System launched a new partnership with LifeRamp, a coaching technology company. This collaboration will offer undergraduate and graduate students one full year of access to LifeRamp’s Launch 360° coaching service in four languages.
Students will also have access to LifeRamp’s life and career coaching platform. LifeRamp is a leading-edge career development tool offering a wide variety of features, benefitting the students immensely.
For the third quarter that ended September 30, 2023, APEI’s revenue increased marginally year-over-year to $150.84 million, and revenue from the APUS segment was $76.41 million, up 11.2% year-over-year. Its income from operations before interest and income taxes came in at $6.40 million, against a loss from operations of $1.03 million in the prior year’s quarter.
In addition, the company’s adjusted EBITDA increased 91.4% from the year-ago value to $18.10 million. Its total cash and cash equivalents were $155.15 million as of September 30, 2023, compared to $129.46 million as of December 31, 2022.
As per its fourth quarter 2023 outlook, APUS net course registrations are expected to range from 88,900 to 90,700, representing growth of 2% to 4% year-over-year. The company projects net income available to common stockholders of $1.30-$2.70 million, and its EPS is expected to be between $0.07 to $0.15.
For the fiscal year ending December 2024, analysts expect the APEI’s revenue to grow 2.6% from the prior year to $613.78 million.
APEI’s stock has gained 36.7% over the past month and 137% over the past six months to close the last trading session at $11.28.
APEI’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Growth and a B for Value, Sentiment, and Quality. Within the A-rated Outsourcing – Education Services industry, APEI is ranked #2 of 20 stocks.
Click here to access additional ratings of APEI for Momentum and Stability.
ARC Document Solutions, Inc. (ARC)
ARC is a digital printing company that offers digital printing and document-related services. The company provides managed print services that place, manage, and optimize print and imaging equipment in clients’ offices, job sites, and other facilities. It also offers cloud-based document management software and other digital hosting services.
On September 28, ARC purchased 303,174 shares of its own stock through open market transactions during the third quarter of 2023. As announced in April last year, 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 its commitment to return shareholder value.
ARC pays an annual dividend of $0.20, which translates to a yield of 6.94% at the current share price. Its four-year average dividend yield is 3.66%. Moreover, the company’s dividend payouts have increased at a CAGR of 115.4% over the past three years.
In the third quarter that ended on September 30, 2023, ARC reported net sales of $71.06 million. Scanning and Digital Imaging sales grew 4.2% from the year-ago value to $5 million. Also, adjusted net income attributable to ARC was $3.20 million and $0.07 per share, respectively.
The company’s total current assets as of September 30, 2023, were $107.94 million, and its cash and cash equivalents stood at $50.59 million.
Analysts expect ARC’s revenue and EPS for the first quarter (ending March 2024) to increase marginally and 40% year-over-year to $69.20 million and $0.07, respectively. Furthermore, for the fiscal year ending December 2024, the company’s revenue and EPS are expected to grow 1.4% and 17.9% year-over-year to $284.70 million and $0.33, respectively.
Shares of ARC have decreased 2.4% over the past month to close the last trading session at $2.88.
ARC’s POWR Ratings reflect its robust outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
ARC has an A grade for Value and a B for Sentiment, Stability, and Quality. It is ranked #3 out of 42 stocks in the B-rated Outsourcing – Business Services industry.
In addition to the POWR Ratings we’ve stated above, we also have ARC ratings for Growth and Momentum. Get all ARC ratings here.
Hudson Global, Inc. (HSON)
HSON offers talent solutions for mid-to-large-cap multinational companies and government agencies under the Hudson RPO brand internationally. The company provides recruitment process outsourcing (RPO) services like recruitment outsourcing, project-based outsourcing, contingent workforce solutions, and recruitment consulting.
On November 1, HSON announced the acquisition of Hudson Global Resources (Singapore) Pte Ltd, a provider of recruitment services mainly to clients operating in Singapore.
Hudson Singapore has an impressive 30-year track record of senior placements and project recruitment work across Southeast Asia, including Singapore, Malaysia, Philippines, Thailand, Vietnam, and Indonesia.
This strategic acquisition will significantly increase HSON's market presence in Southeast Asia and generate significant value for its clients, team, and stockholders.
During the third quarter that ended September 30, 2023, HSON reported revenue of $39.40 million. Its operating income increased marginally from the year-ago value to $1.28 million. Also, the company’s net income came in at $533 thousand and $0.17 per share, respectively.
Additionally, as of September 30, 2023, the company’s current liabilities reduced to $13.12 million, compared to $21.12 million as of December 31, 2022.
Street expects HSON’s EPS to grow 90.9% in the first quarter (ending March 2024) to $0.42. Further, for the fiscal year 2024, the company’s revenue and EPS are expected to grow 4% and 54.2% year-over-year to $172.02 million and $2.02.
Over the past month, the stock has declined 6.9% to close the last trading session at $15.75.
HSON’s POWR Ratings reflect its bright prospects. The stock has an overall grade of A, translating to a Strong Buy in our proprietary rating system.
HSON has an A grade for Value and Sentiment. The stock has a B grade for Quality. It has topped the list of 22 stocks within the A-rated Outsourcing – Staffing Services industry.
To see other ratings of HSON for Growth, Momentum, and Stability, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
APEI shares were unchanged in premarket trading Thursday. Year-to-date, APEI has gained 16.89%, versus a 0.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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