In This Article:
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 5.8%. This drop was worse than the S&P 500’s 2% fall.
A cautious approach is imperative when dabbling in these companies as many are also sensitive to the ebbs and flows of the broader economy. Keeping that in mind, here are three services stocks best left ignored.
Jabil (JBL)
Market Cap: $15.84 billion
With manufacturing facilities spanning the globe from China to Mexico to the United States, Jabil (NYSE:JBL) provides electronics design, manufacturing, and supply chain solutions to companies across various industries, from healthcare to automotive to cloud computing.
Why Is JBL Not Exciting?
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Customers postponed purchases of its products and services this cycle as its revenue declined by 11.6% annually over the last two years
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Flat earnings per share over the last two years lagged its peers
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Low free cash flow margin of 3.1% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Jabil is trading at $147.58 per share, or 15.4x forward P/E. Dive into our free research report to see why there are better opportunities than JBL.
Steelcase (SCS)
Market Cap: $1.13 billion
Founded in 1912 when metal office furniture was replacing wooden alternatives, Steelcase (NYSE:SCS) is a global office furniture manufacturer that designs and produces workplace solutions including desks, chairs, architectural products, and services.
Why Is SCS Risky?
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Customers postponed purchases of its products and services this cycle as its revenue declined by 3.2% annually over the last five years
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Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
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ROIC of 6.4% reflects management’s challenges in identifying attractive investment opportunities
At $10 per share, Steelcase trades at 9.1x forward P/E. To fully understand why you should be careful with SCS, check out our full research report (it’s free).
PAR Technology (PAR)
Market Cap: $2.42 billion
Originally founded in 1968 as a defense contractor for the U.S. government, PAR Technology (NYSE:PAR) provides cloud-based software, payment processing, and hardware solutions that help restaurants manage everything from point-of-sale to customer loyalty programs.
Why Are We Hesitant About PAR?
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Sales were flat over the last two years, indicating it’s failed to expand this cycle
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Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
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Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders