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 2.4%. This drawdown was discouraging since the S&P 500 returned 2.5%.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. On that note, here are two resilient services stocks at the top of our wish list and one that may face trouble.
One Business Services Stock to Sell:
Rumble (RUM)
Market Cap: $1.69 billion
Founded in 2013 as a champion for content creator rights and free expression, Rumble (NASDAQ: RUM) is a video sharing platform that positions itself as a free speech alternative to mainstream platforms, offering creators more favorable revenue-sharing opportunities.
Why Are We Cautious About RUM?
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 31.9 percentage points
- Cash burn has widened over the last five years, making us question whether it can reliably generate shareholder value
- Negative earnings profile makes it challenging to secure favorable financing terms from lenders
Rumble is trading at $5.00 per share, or 20x forward EV-to-EBITDA. If you’re considering RUM for your portfolio, see our FREE research report to learn more.
Two Business Services Stocks to Watch:
Dell (DELL)
Market Cap: $114.8 billion
Founded by Michael Dell in his University of Texas dorm room in 1984 with just $1,000, Dell Technologies (NYSE: DELL) provides hardware, software, and services that help organizations build their IT infrastructure, manage cloud environments, and enable digital transformation.
Why Are We Backing DELL?
- Annual revenue growth of 13.3% over the last two years was superb and indicates its market share increased during this cycle
- Share repurchases over the last two years enabled its annual earnings per share growth of 20.5% to outpace its revenue gains
- Improving returns on capital reflect management’s ability to monetize investments
Dell’s stock price of $178.03 implies a valuation ratio of 14.1x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
MediaAlpha (MAX)
Market Cap: $499.3 million
Powering nearly 10 million consumer referrals each month in the insurance marketplace, MediaAlpha (NYSE: MAX) operates a technology platform that connects insurance carriers with high-intent consumers shopping for property, casualty, health, and life insurance products.
Why Are We Fans of MAX?
- Market share has increased this cycle as its 69.4% annual revenue growth over the last two years was exceptional
- Forecasted revenue growth of 12.7% for the next 12 months indicates its momentum over the last two years is sustainable
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 564% over the last two years outstripped its revenue performance
At $9.00 per share, MediaAlpha trades at 6.7x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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