Business services providers use their specialized expertise to help enterprises streamline operations and cut costs. Furthermore, the demand for their offerings is rising as more clients outsource non-core functions, a trend that has enabled the industry to return 15% over the past six months. At the same time, the S&P 500 was up 7.7%.
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. Keeping that in mind, here is one services stock boasting a durable advantage and two we’re swiping left on.
Two Business Services Stocks to Sell:
Kyndryl (KD)
Market Cap: $2.48 billion
Born from IBM's managed infrastructure services business in a 2021 spinoff, Kyndryl (NYSE: KD) is the world's largest IT infrastructure services provider that designs, builds, and manages technology environments for enterprise customers.
Why Are We Wary of KD?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.8% annually over the last five years
- Projected sales decline of 1.1% over the next 12 months indicates demand will continue deteriorating
- Push for growth has led to negative returns on capital, signaling value destruction
Kyndryl’s stock price of $11.82 implies a valuation ratio of 6.6x forward P/E. To fully understand why you should be careful with KD, check out our full research report (it’s free).
SAIC (SAIC)
Market Cap: $4.86 billion
With over five decades of experience supporting national security missions, Science Applications International Corporation (NASDAQ: SAIC) provides technical, engineering, and enterprise IT services primarily to U.S. government agencies and military branches.
Why Are We Hesitant About SAIC?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Estimated sales decline of 1.6% for the next 12 months implies an even more challenging demand environment
SAIC is trading at $113.25 per share, or 11.8x forward P/E. If you’re considering SAIC for your portfolio, see our FREE research report to learn more.
One Business Services Stock to Buy:
TD SYNNEX (SNX)
Market Cap: $22.28 billion
Serving as the crucial middleman in the technology supply chain, TD SYNNEX (NYSE: SNX) is a global technology distributor that connects thousands of IT manufacturers with resellers, helping businesses access hardware, software, and technology solutions.
Why Is SNX a Top Pick?
- Market share has increased this cycle as its 25.7% annual revenue growth over the last five years was exceptional
- Dominant market position is represented by its $69.77 billion in revenue and gives it fixed cost leverage when sales grow
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 20.9% exceeded its revenue gains over the last two years
At $246.82 per share, TD SYNNEX trades at 13.5x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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