In This Article:
Business services providers thrive by solving complex operational challenges for their clients, allowing them to focus on their secret sauce. But increasing competition from AI-driven upstarts has tempered enthusiasm, and over the past six months, the industry has pulled back by 3.1%. This drawdown was disheartening since the S&P 500 stood firm.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Keeping that in mind, here are two resilient services stocks at the top of our wish list and one best left ignored.
One Business Services Stock to Sell:
TTM Technologies (TTMI)
Market Cap: $3.01 billion
As one of the world's largest printed circuit board manufacturers with facilities spanning North America and Asia, TTM Technologies (NASDAQ:TTMI) manufactures printed circuit boards (PCBs) and radio frequency (RF) components for aerospace, defense, automotive, and telecommunications industries.
Why Do We Think TTMI Will Underperform?
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Muted 1.3% annual revenue growth over the last two years shows its demand lagged behind its business services peers
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Free cash flow margin dropped by 9.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
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ROIC of 4.7% reflects management’s challenges in identifying attractive investment opportunities
TTM Technologies is trading at $30.22 per share, or 14.3x forward P/E. To fully understand why you should be careful with TTMI, check out our full research report (it’s free).
Two Business Services Stocks to Watch:
Barrett (BBSI)
Market Cap: $1.07 billion
Operating as a professional employer organization (PEO) that serves over 8,000 companies with more than 120,000 worksite employees, Barrett Business Services (NASDAQ:BBSI) provides management solutions that help small and mid-sized businesses handle human resources, payroll, workers' compensation, and other administrative functions.
Why Could BBSI Be a Winner?
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Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
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ROIC punches in at 57.3%, illustrating management’s expertise in identifying profitable investments, and its returns are growing as it capitalizes on even better market opportunities
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Rising returns on capital show management is finding more attractive investment opportunities
Barrett’s stock price of $41.59 implies a valuation ratio of 18.4x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.