Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. But increasing competition from AI-driven upstarts has tempered enthusiasm, and over the past six months, the industry has pulled back by 9.3%. This drawdown was worse than the S&P 500’s 3.2% loss.
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 is one services stock boasting a durable advantage and two we’re steering clear of.
Two Business Services Stocks to Sell:
HNI (HNI)
Market Cap: $2.48 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 Does HNI Give Us Pause?
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $34.39 per share, HNI trades at 8.6x forward P/E. Dive into our free research report to see why there are better opportunities than HNI.
IAC (IAC)
Market Cap: $2.99 billion
Originally known as InterActiveCorp and built through Barry Diller's strategic acquisitions since the 1990s, IAC (NASDAQ: IAC) operates a portfolio of category-leading digital businesses including Dotdash Meredith, Angi, and Care.com, focusing on digital publishing, home services, and caregiving platforms.
Why Do We Pass on IAC?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Earnings per share fell by 19.1% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Negative returns on capital show that some of its growth strategies have backfired
IAC’s stock price of $38.86 implies a valuation ratio of 26x forward P/E. Read our free research report to see why you should think twice about including IAC in your portfolio.
One Business Services Stock to Buy:
Cintas (CTAS)
Market Cap: $66.29 billion
Starting as a family business collecting and cleaning shop rags in Cincinnati, Cintas (NASDAQ: CTAS) provides corporate identity uniforms, facility services, and safety products to over one million businesses across North America.
Why Is CTAS a Good Business?
- Annual revenue growth of 9.8% over the past five years was outstanding, reflecting market share gains this cycle
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 16.4% exceeded its revenue gains over the last five years
- Strong free cash flow margin of 16.4% enables it to reinvest or return capital consistently
Cintas is trading at $165.35 per share, or 31.9x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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