Business services providers thrive by solving complex operational challenges for their clients, allowing them to focus on their secret sauce. But cutbacks in corporate spending and the threat of new AI products have kept sentiment in check, and over the past six months, the industry’s 5.3% return has trailed the S&P 500 by 6.4 percentage points.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. On that note, here are two services stocks boasting durable advantages and one we’re passing on.
One Business Services Stock to Sell:
Amentum (AMTM)
Market Cap: $7.11 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 Is AMTM Not Exciting?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 2.4% for the last three years
- Estimated sales decline of 1.6% for the next 12 months implies a challenging demand environment
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Amentum’s stock price of $29.23 implies a valuation ratio of 12.4x forward P/E. Read our free research report to see why you should think twice about including AMTM in your portfolio.
Two Business Services Stocks to Buy:
Napco (NSSC)
Market Cap: $1.5 billion
Protecting everything from schools to government facilities since 1969, Napco Security Technologies (NASDAQ: NSSC) manufactures electronic security devices, access control systems, and communication services for intrusion and fire alarm systems.
Why Will NSSC Outperform?
- Impressive 13.7% annual revenue growth over the last five years indicates it’s winning market share this cycle
- NSSC is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its recently improved profitability means it has even more resources to invest or distribute
- Improving returns on capital reflect management’s ability to monetize investments
At $42.05 per share, Napco trades at 30.8x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
Amphenol (APH)
Market Cap: $167.6 billion
With over 90 years of connecting the world's technologies, Amphenol (NYSE: APH) designs and manufactures connectors, cables, sensors, and interconnect systems that enable electrical and electronic connections across virtually every industry.
Why Do We Love APH?
- Annual revenue growth of 29.7% over the past two years was outstanding, reflecting market share gains this cycle
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 40.2% outpaced its revenue gains
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its growing cash flow gives it even more resources to deploy
Amphenol is trading at $137.34 per share, or 36x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
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