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3 Top Stocks to Watch From the Business Services Industry
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Economic recovery, leading to a rise in manufacturing and service activities, along with the increased technology adoption and success of the work-from-home trend, is enabling the Zacks Business-Services industry to support a growing demand environment.
Prudent growth strategies, innovation and technology enhancements are helping Concentrix Corporation (CNXC - Free Report) , HeadHunterGroup (HHR - Free Report) and WNS (Holdings) Limited (WNS - Free Report) to sail through the ongoing pandemic.
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 will continue to change the way industry players have conducted businesses and delivered services so far. The industry’s key focus is currently on channelizing money and efforts toward more effective operational components, such as technology, digital transformation, 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 strategic initiatives.
What's Shaping the Future of the Business Services Industry?
Economic Recovery: The industry is a major beneficiary of manufacturing and service activities which, in turn, are dependent on economic health. Notably, a steady economic recovery is evident from the fourth-quarter 2021 GDP number, which according to the "second" estimate released by the Bureau of Economic Analysis, increased at an annual rate of 7% compared with the rise of 2.3% in the third quarter. The February Manufacturing PMI measured by Institute for Supply Management touched 58.6%, clocking the 21st consecutive month of expansion in economic activity. Although the economic activity in the service sector shrunk 3.4% from January to February, with the Services PMI touching 56.5%, the reading of above 50% marked the 21st consecutive month of expansion.
Demand Stability: The industry is mature, with demand for services being in good shape over time. Revenues, income and cash flows are anticipated to gradually reach pre-pandemic healthy levels, helping most industry players pay out stable 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 ongoing moves to lift the Trump-era ban on legal immigration will help service providers thrive with the increased flow of foreign talent.
Zacks Industry Rank Indicates Bleak Prospects
The Business-Services industry is housed within the broader Business Services sector. It carries a Zacks Industry Rank #175, which places it in the bottom 29% of more than 250 Zacks industries.
The group’s Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The analysts covering the companies in this industry have been steadily pushing their estimates south. Over the past year, the industry’s consensus earnings estimate for 2022 has moved 49.8% north.
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
Over the past year, the Zacks Business Services industry has declined 52.4% against the S&P 500 composite’s rally of 6.2%. The broader sector has declined 52.3% 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 24.04 compared with the S&P 500’s 18.56 and the sector’s 24.01.
Over the past five years, the industry has traded as high as 31.77X, as low as 19.44X and at the median of 23.6X, 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.
Concentrix remains focused on integrating digital technology and analytics to boost sales. The company is witnessing strength across all verticals, especially technology, banking and finance, retail e-commerce and travel and health care.
The recent acquisition of PK is expected to strengthen Concentrix’s digital transformation and help it develop excellency in the areas of CX Design & Development, Intelligent Automation, AI and Customer Loyalty.
The Zacks Consensus Estimate for the current-year EPS has moved up 11.4% in the past 60 days. The stock has gained 37.1% in a year’s time.
Price and Consensus: CNXC
WNS (Holdings) Limited: The business process management (BPM) company offers data, voice and analytical and business transformation services and currently carries a Zacks Rank #2 (Buy). WNS is trying to meet the pandemic-induced digital transformation trends by investing in digital capabilities that streamline clients’ operations and enhance decision-making through data and analytics. Investments are mainly focused on creation and innovation labs, specialized centers of excellence and industry-specific digital offerings.
The company’s opportunities in the BPM space are also on the rise, with clients’ growing need to use analytics and industry-specific expertise for transforming their business models.
The Zacks Consensus Estimate for the ongoing year’s EPS has been revised 1.5% upward over the past 60 days. The stock has gained 8.4% over the past year.
Price and Consensus: WNS
HeadHunterGroup PLC: The company operates an online recruitment platform globally and currently carries a Zacks Rank #2. Its business is benefiting from increasing demand for online platforms and the resultant addition of customers. The acquisition of cloud-based HCM software provider Skillaz will likely help the company expand in the market for enterprise solution.
The Zacks Consensus Estimate for the ongoing year’s EPS has been revised 1.5% upward over the past 60 days.
Price and Consensus: HHR
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3 Top Stocks to Watch From the Business Services Industry
Economic recovery, leading to a rise in manufacturing and service activities, along with the increased technology adoption and success of the work-from-home trend, is enabling the Zacks Business-Services industry to support a growing demand environment.
Prudent growth strategies, innovation and technology enhancements are helping Concentrix Corporation (CNXC - Free Report) , HeadHunterGroup (HHR - Free Report) and WNS (Holdings) Limited (WNS - Free Report) to sail through the ongoing pandemic.
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 will continue to change the way industry players have conducted businesses and delivered services so far. The industry’s key focus is currently on channelizing money and efforts toward more effective operational components, such as technology, digital transformation, 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 strategic initiatives.
What's Shaping the Future of the Business Services Industry?
Economic Recovery: The industry is a major beneficiary of manufacturing and service activities which, in turn, are dependent on economic health. Notably, a steady economic recovery is evident from the fourth-quarter 2021 GDP number, which according to the "second" estimate released by the Bureau of Economic Analysis, increased at an annual rate of 7% compared with the rise of 2.3% in the third quarter. The February Manufacturing PMI measured by Institute for Supply Management touched 58.6%, clocking the 21st consecutive month of expansion in economic activity. Although the economic activity in the service sector shrunk 3.4% from January to February, with the Services PMI touching 56.5%, the reading of above 50% marked the 21st consecutive month of expansion.
Demand Stability: The industry is mature, with demand for services being in good shape over time. Revenues, income and cash flows are anticipated to gradually reach pre-pandemic healthy levels, helping most industry players pay out stable 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 ongoing moves to lift the Trump-era ban on legal immigration will help service providers thrive with the increased flow of foreign talent.
Zacks Industry Rank Indicates Bleak Prospects
The Business-Services industry is housed within the broader Business Services sector. It carries a Zacks Industry Rank #175, which places it in the bottom 29% of more than 250 Zacks industries.
The group’s Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The analysts covering the companies in this industry have been steadily pushing their estimates south. Over the past year, the industry’s consensus earnings estimate for 2022 has moved 49.8% north.
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
Over the past year, the Zacks Business Services industry has declined 52.4% against the S&P 500 composite’s rally of 6.2%. The broader sector has declined 52.3% 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 24.04 compared with the S&P 500’s 18.56 and the sector’s 24.01.
Over the past five years, the industry has traded as high as 31.77X, as low as 19.44X and at the median of 23.6X, 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.
Concentrix Corporation (CNXC - Free Report) : This provider of technology-infused customer experience solution carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Concentrix remains focused on integrating digital technology and analytics to boost sales. The company is witnessing strength across all verticals, especially technology, banking and finance, retail e-commerce and travel and health care.
The recent acquisition of PK is expected to strengthen Concentrix’s digital transformation and help it develop excellency in the areas of CX Design & Development, Intelligent Automation, AI and Customer Loyalty.
The Zacks Consensus Estimate for the current-year EPS has moved up 11.4% in the past 60 days. The stock has gained 37.1% in a year’s time.
Price and Consensus: CNXC
WNS (Holdings) Limited: The business process management (BPM) company offers data, voice and analytical and business transformation services and currently carries a Zacks Rank #2 (Buy). WNS is trying to meet the pandemic-induced digital transformation trends by investing in digital capabilities that streamline clients’ operations and enhance decision-making through data and analytics. Investments are mainly focused on creation and innovation labs, specialized centers of excellence and industry-specific digital offerings.
The company’s opportunities in the BPM space are also on the rise, with clients’ growing need to use analytics and industry-specific expertise for transforming their business models.
The Zacks Consensus Estimate for the ongoing year’s EPS has been revised 1.5% upward over the past 60 days. The stock has gained 8.4% over the past year.
Price and Consensus: WNS
HeadHunterGroup PLC: The company operates an online recruitment platform globally and currently carries a Zacks Rank #2. Its business is benefiting from increasing demand for online platforms and the resultant addition of customers. The acquisition of cloud-based HCM software provider Skillaz will likely help the company expand in the market for enterprise solution.
The Zacks Consensus Estimate for the ongoing year’s EPS has been revised 1.5% upward over the past 60 days.
Price and Consensus: HHR