Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. Market leaders have certainly capitalized on outsourcing trends and digital transformation initiatives to boost sales, helping fuel a 15.1% gain for the industry over the past six months. This performance has closely followed the S&P 500.
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. With that said, here is one resilient services stock at the top of our wish list and two best left ignored.
Market Cap: $887.7 million
With a vast library of over 562 million visual assets documenting everything from breaking news to iconic historical moments, Getty Images (NYSE:GETY) is a global visual content marketplace that licenses photos, videos, illustrations, and music to businesses, media outlets, and creative professionals.
Why Should You Sell GETY?
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Sales trends were unexciting over the last two years as its 1.3% annual growth was below the typical business services company
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Efficiency has decreased over the last five years as its adjusted operating margin fell by 3.9 percentage points
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Free cash flow margin dropped by 12.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Getty Images’s stock price of $2.14 implies a valuation ratio of 3x forward EV-to-EBITDA. To fully understand why you should be careful with GETY, check out our full research report (it’s free).
Market Cap: $2.09 billion
With roots dating back to 1944 and a significant acquisition of Kimball International in 2023, HNI (NYSE:HNI) manufactures and sells office furniture systems, seating, and storage solutions, as well as residential fireplaces and heating products.
Why Are We Wary of HNI?
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4.9% annual revenue growth over the last five years was slower than its business services peers
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Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its two-year trend
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Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 2.2 percentage points
At $45.55 per share, HNI trades at 12.3x forward P/E. Dive into our free research report to see why there are better opportunities than HNI.
Market Cap: $34.12 billion
Processing over 2.8 billion insurance transaction records annually through one of the world’s largest private databases, Verisk Analytics (NASDAQ:VRSK) provides data, analytics, and technology solutions that help insurance companies assess risk, detect fraud, and make better business decisions.
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