Business services providers thrive by solving complex operational challenges for their clients, allowing them to focus on their secret sauce. But increasing competition from AI-driven upstarts has tempered enthusiasm, and over the past six months, the industry has pulled back by 1.6%. This drawdown was disheartening since the S&P 500 stood firm.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. 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:
IBM (IBM)
Market Cap: $230.3 billion
With a corporate history spanning over a century and once known for its iconic mainframe computers, IBM (NYSE:IBM) provides hybrid cloud computing platforms, AI solutions, consulting services, and enterprise infrastructure to help businesses modernize their operations.
Why Should You Sell IBM?
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Annual sales growth of 1.7% over the last five years lagged behind its business services peers as its large revenue base made it difficult to generate incremental demand
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Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 1% annually
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Underwhelming 11.4% return on capital reflects management’s difficulties in finding profitable growth opportunities
IBM’s stock price of $249.20 implies a valuation ratio of 23.3x forward price-to-earnings. To fully understand why you should be careful with IBM, check out our full research report (it’s free) .
Lumen (LUMN)
Market Cap: $4.94 billion
With approximately 350,000 route miles of fiber optic cable spanning North America and the Asia Pacific, Lumen Technologies (NYSE:LUMN) operates a vast fiber optic network that provides communications, cloud connectivity, security, and IT solutions to businesses and consumers.
Why Do We Think LUMN Will Underperform?
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Customers postponed purchases of its products and services this cycle as its revenue declined by 9.4% annually over the last five years
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Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
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Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $4.86 per share, Lumen trades at 1.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including LUMN in your portfolio, it’s free .
One Business Services Stock to Buy:
Globalstar (GSAT)
Market Cap: $2.70 billion
Known for powering the emergency SOS feature in newer Apple iPhones, Globalstar (NASDAQ:GSAT) operates a network of low-earth orbit satellites that provide voice and data communications services in remote areas where traditional cellular networks don't reach.
Why Are We Bullish on GSAT?
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Market share has increased this cycle as its 29.8% annual revenue growth over the last two years was exceptional
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Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 52.5% outpaced its revenue gains
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Robust free cash flow margin of 23.7% gives it many options for capital deployment, and its rising cash conversion increases its margin of safety
Globalstar is trading at $21.30 per share, or 19.8x forward EV-to-EBITDA. 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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Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free .
