In This Article:
Business services providers thrive by solving complex operational challenges for their clients, allowing them to focus on their secret sauce. But cutbacks in corporate spending and the threat of new AI products have kept sentiment in check, and over the past six months, the industry has tumbled by 6.3%. This performance was discouraging since the S&P 500 held its ground.
Investors should tread carefully as many of these companies are also cyclical, and any misstep can have you catching a falling knife. Taking that into account, here are three services stocks best left ignored.
Liberty Broadband (LBRDK)
Market Cap: $14.36 billion
Operating across the United States, Liberty Broadband (NASDAQ:LBRDK) is a provider of high-speed internet, cable television, and telecommunications services across various markets.
Why Should You Sell LBRDK?
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Annual revenue growth of 2.7% over the last two years was below our standards for the business services sector
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Free cash flow margin dropped by 34.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
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Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $100.33 per share, Liberty Broadband trades at 57.3x forward EV-to-EBITDA. To fully understand why you should be careful with LBRDK, check out our full research report (it’s free).
Coherent (COHR)
Market Cap: $12.35 billion
Created through the 2022 rebranding of II-VI Incorporated, a company with roots dating back to 1971, Coherent (NYSE:COHR) develops and manufactures advanced materials, lasers, and optical components for applications ranging from telecommunications to industrial manufacturing.
Why Do We Think Twice About COHR?
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Earnings per share fell by 4.9% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
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Free cash flow margin dropped by 11.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
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ROIC of 3.8% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
Coherent is trading at $79.59 per share, or 19.3x forward P/E. Read our free research report to see why you should think twice about including COHR in your portfolio, it’s free.
CRA (CRAI)
Market Cap: $1.30 billion
Often retained for high-stakes matters with multibillion-dollar implications, CRA International (NASDAQ:CRAI) provides economic, financial, and management consulting services to corporations, law firms, and government agencies for litigation, regulatory proceedings, and business strategy.