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Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. These firms have helped their customers unlock huge efficiencies, so it’s no surprise the industry has posted a 6.8% gain over the past six months, beating the S&P 500 by 3.2 percentage points.
Regardless of these results, investors must exercise caution as many companies in this space are sensitive to the ebbs and flows of the broader economy. Keeping that in mind, here are two services stocks boasting durable advantages and one we’re swiping left on.
One Business Services Stock to Sell:
Xerox (XRX)
Market Cap: $796.8 million
Once synonymous with photocopying, Xerox (NASDAQ:XRX) provides document technology, services, and software solutions for businesses, helping them manage information workflows across digital and physical platforms.
Why Do We Avoid XRX?
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Customers postponed purchases of its products and services this cycle as its revenue declined by 7.3% annually over the last five years
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Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
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6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Xerox is trading at $6.41 per share, or 5x forward price-to-earnings. Check out our free in-depth research report to learn more about why XRX doesn’t pass our bar.
Two Business Services Stocks to Watch:
MSA Safety (MSA)
Market Cap: $6.20 billion
Founded in 1914 and known as "The Safety Company," MSA Safety (NYSE:MSA) develops and manufactures advanced safety products that protect workers and facility infrastructures across industries like firefighting, energy, construction, and manufacturing.
Why Are We Fans of MSA?
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Solid 8.8% annual revenue growth over the last two years indicates its offering’s solve complex business issues
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Operating margin expanded by 4.8 percentage points over the last five years as it scaled and became more efficient
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Additional sales over the last two years increased its profitability as the 16.8% annual growth in its earnings per share outpaced its revenue
At $157.99 per share, MSA Safety trades at 19.4x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.
Gartner (IT)
Market Cap: $37.03 billion
Founded in 1979 as a technology research firm and now serving executives across all business functions, Gartner (NYSE:IT) is a research and advisory firm that provides actionable insights, guidance, and tools to help executives make better decisions about technology and business strategies.