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 20.5% gain over the past six months, beating the S&P 500 by 8.8 percentage points.
Although these companies have produced results, only a handful will thrive over the long term as AI-driven upstarts are rapidly taking share from the incumbents. Taking that into account, here is one services stock boasting a durable advantage and two we’re passing on.
Two Business Services Stocks to Sell:
ICF International (ICFI)
Market Cap: $1.64 billion
Operating at the intersection of policy, technology, and implementation for over five decades, ICF International (NASDAQ: ICFI) provides professional consulting services and technology solutions to government agencies and commercial clients across energy, health, environment, and security sectors.
Why Do We Avoid ICFI?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.3% annually over the last two years
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 5.7% declines over the past two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
ICF International’s stock price of $91.51 implies a valuation ratio of 12.7x forward P/E. If you’re considering ICFI for your portfolio, see our FREE research report to learn more.
Amentum (AMTM)
Market Cap: $5.97 billion
With operations spanning approximately 80 countries and a workforce of specialized engineers and technical experts, Amentum Holdings (NYSE: AMTM) provides advanced engineering and technology solutions to U.S. government agencies, allied governments, and commercial enterprises across defense, energy, and space sectors.
Why Are We Wary of AMTM?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Estimated sales growth of 2.8% for the next 12 months is soft and implies weaker demand
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
At $22.71 per share, Amentum trades at 9.5x forward P/E. Dive into our free research report to see why there are better opportunities than AMTM.
One Business Services Stock to Watch:
IonQ (IONQ)
Market Cap: $16.2 billion
Founded by quantum physics pioneers from the University of Maryland and Duke University in 2015, IonQ (NYSE: IONQ) develops quantum computers that process information using trapped ions to solve complex computational problems beyond the capabilities of traditional computers.
Why Could IONQ Be a Winner?
- Market share has increased this cycle as its 181% annual revenue growth over the last two years was exceptional
- Market share will likely rise over the next 12 months as its expected revenue growth of 30.6% is robust
- Adjusted operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
IonQ is trading at $42.35 per share, or 50.8x forward price-to-sales. Is now the right time to buy? See for yourself in our full research report, it’s free.
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