Business services providers use their specialized expertise to help enterprises streamline operations and cut costs. Market leaders have certainly capitalized on outsourcing trends and digital transformation initiatives to boost sales, helping fuel a 7.2% gain for the industry over the past six months. This performance has closely followed the S&P 500.

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. With that said, here is one services stock boasting a durable advantage and two we’re swiping left on.

Two Business Services Stocks to Sell:

Alight (ALIT)

Market Cap: $367 million

Born from a corporate spinoff in 2017 to focus on employee experience technology, Alight (NYSE: ALIT) provides human capital management solutions that help companies administer employee benefits, payroll, and workforce management systems.

Why Are We Out on ALIT?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.8% annually over the last five years
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Alight’s stock price of $0.73 implies a valuation ratio of 2.8x forward P/E. Dive into our free research report to see why there are better opportunities than ALIT.

Kforce (KFRC)

Market Cap: $801.2 million

With nearly 60 years of matching skilled professionals with the right opportunities, Kforce (NYSE: KFRC) is a professional staffing company that specializes in placing technology and finance experts with businesses on both temporary and permanent bases.

Why Should You Sell KFRC?

1. Annual sales declines of 1.4% for the past five years show its products and services struggled to connect with the market during this cycle
2. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Kforce is trading at $47.89 per share, or 19.3x forward P/E. To fully understand why you should be careful with KFRC, check out our full research report (it’s free).

One Business Services Stock to Buy:

OSI Systems (OSIS)

Market Cap: $3.55 billion

With security scanners deployed at airports and borders worldwide and patient monitors used in hospitals across the globe, OSI Systems (NASDAQ: OSIS) designs and manufactures specialized electronic systems for security screening, patient monitoring, and optoelectronic applications.

Why Is OSIS a Good Business?

1. Annual revenue growth of 10.9% over the past two years was outstanding, reflecting market share gains this cycle
2. Share repurchases over the last five years enabled its annual earnings per share growth of 14.5% to outpace its revenue gains
3. Returns on capital are climbing as management makes more lucrative bets

At $215.50 per share, OSI Systems trades at 19x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

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