Business services providers use their specialized expertise to help enterprises streamline operations and cut costs. But increasing competition from AI-driven upstarts has tempered enthusiasm, and over the past six months, the industry has pulled back by 3.7%. This performance was similar to the S&P 500’s decline.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here is one services stock poised to generate sustainable market-beating returns and two we’re steering clear of.
Two Business Services Stocks to Sell:
Concentrix (CNXC)
Market Cap: $3.45 billion
With a team of approximately 450,000 employees across 75 countries, Concentrix (NASDAQ: CNXC) designs and delivers customer experience solutions that help global brands manage their customer interactions across digital channels and contact centers.
Why Are We Cautious About CNXC?
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- Annual earnings per share growth of 2.5% underperformed its revenue over the last two years, showing its incremental sales were less profitable
- Underwhelming 7% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
Concentrix is trading at $53.60 per share, or 4.6x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than CNXC.
Zebra (ZBRA)
Market Cap: $14.54 billion
Taking its name from the black and white stripes of barcodes, Zebra Technologies (NASDAQ: ZBRA) provides barcode scanners, mobile computers, RFID systems, and other data capture technologies that help businesses track assets and optimize operations.
Why Should You Dump ZBRA?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $281 per share, Zebra trades at 17.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why ZBRA doesn’t pass our bar.
One Business Services Stock to Watch:
Grid Dynamics (GDYN)
Market Cap: $1.30 billion
With engineering centers across the Americas, Europe, and India serving Fortune 1000 companies, Grid Dynamics (NASDAQ: GDYN) provides technology consulting, engineering, and analytics services to help large enterprises modernize their technology systems and business processes.
Why Is GDYN on Our Radar?
- Impressive 24.3% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Market share is on track to rise over the next 12 months as its 20.7% projected revenue growth implies demand will accelerate from its two-year trend
- Rising returns on capital show the company is starting to reap the benefits of its past investments
Grid Dynamics’s stock price of $15.61 implies a valuation ratio of 37.7x forward price-to-earnings. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
