3 Business Services Stocks to Consider From a Prospering Industry
Increased technology adoption and the success of the work-from-home trend are enabling the Zacks Business-Services industry to support a growing demand environment.
Prudent growth strategies, innovation and technology enhancements are helping Avis Budget Group, Inc. CAR, Bowman Consulting Group Ltd. BWMN and IBEX Limited IBEX to sail through the pandemic-related challenges.
About the Industry
The Zacks Business-Services industry comprises companies that offer a range of services, including specialty rental, supply-chain management, electronic commerce, technology, document management, digital audience, data, voice, analytical and business transformation, among others. The pandemic has changed the way industry players conduct business and deliver services. The industry’s key focus is currently on channelizing money and efforts toward more effective operational components, such as technology, digital transformation, data-driven decision-making and enhanced cybersecurity. To position themselves suitably in the post-pandemic era and better utilize the opportunities that the economic recovery will bring, service providers are increasing their efforts toward formulating strategic initiatives and identifying sources of demand.
What's Shaping the Future of the Business Services Industry?
Demand Stability: The industry is mature, with demand for services in good shape for a while now. Revenues and income are now hovering above the pre-pandemic healthy levels, helping most industry players to increase dividends.
Relaxing Immigration Restrictions: Higher talent costs due to a competitive talent market, especially under the Trump-era restrictions on immigration, have been a headwind for the industry. However, President Joe Biden’s moves to lift the Trump-era ban on legal immigration are helping service providers thrive with the increased flow of foreign talent.
Certain Headwinds to Continue: With continued uncertainty in the economy, the industry is expected to see pricing, staffing and labor cost increases with no easy savings opportunities in supply chain operations through 2023.
Zacks Industry Rank Indicates Solid Near-Term Prospects
The Business-Services industry is housed within the broader Business Services sector. It carries a Zacks Industry Rank #39, which places it in the top 16% of more than 250 Zacks industries.
The group’s Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and current valuation.
Industry's Price Performance
The Zacks Business Services industry has outperformed the broader sector but underperformed the S&P 500 in the past 12-month period.
The industry has risen 13.1% compared with the S&P 500 composite’s growth of 15.7%. The broader sector has gained 4.1% over the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing business-services stocks, the industry is currently trading at 18.75X compared with the S&P 500’s 19.55X and the sector’s 21.66X.
Over the past five years, the industry has traded as high as 31.52X and as low as 10.86X, with the median being 19.18X, as the charts below show.
Price to Forward 12-Month P/E Ratio
3 Service Stocks to Bet On
We are presenting three stocks that are well poised to grow in the near term.
Bowman Consulting: This provider of real estate, energy, infrastructure, and environmental management solutions is currently witnessing growth across all its markets. The top and bottom lines are benefiting from strong organic and acquisitive growth.
The company sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2023 EPS has remained unchanged at 81 cents in the past 60 days. Bowman’s shares have gained 31.5% year to date.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: BWMN
IBEX Limited: This end-to-end technology-enabled customer lifecycle experience solutions provider also sports a Zacks Rank #1. The company continues with its strategic moves toward long-term profitable business. IBEX has grown its ability to win high-profile deals through differentiated BPO 2.0 capabilities, which include Wave X technology stack, Wave X business analytics and highly branded sites.
The Zacks Consensus Estimate for fiscal 2023 bottom line has increased 19.9% in the past 60 days. IBEX shares have gained 15% year to date.
Price and Consensus: IBEX
Avis Budget Group: This provider of car and truck rentals, car sharing, and ancillary products and services carries a Zacks Rank #1.
The company’s top line is benefiting from strong demand for commercial business and international inbound travel, positively impacting revenues per day. The bottom line is being driven by its technological prowess and its proprietary demand fleet pricing system.
The Zacks Consensus Estimate for 2023 EPS has increased 6.5% in the past 60 days. Avis Budget’s shares have gained 11.7% year to date.
Price and Consensus: CAR
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Avis Budget Group, Inc. (CAR) : Free Stock Analysis Report
IBEX Limited (IBEX) : Free Stock Analysis Report
Bowman Consulting Group Ltd. (BWMN) : Free Stock Analysis Report
