Computer - Services industry is riding on the ongoing digital transformation, which is driving the demand for cloud-enabled software solutions. The rising adoption of digital transformative techniques in healthcare and financial services remains the silver lining for the industry participants. Perficient ( PRFT Quick Quote PRFT - Free Report) and PDF Solutions ( PDFS Quick Quote PDFS - Free Report) are well-positioned to benefit from the above-mentioned factors. The growing need for consulting, research and cyber-security solutions; stringent regulatory requirements; digital healthcare; and the requirement for business automation solutions should continue to drive the industry. However, the industry has been facing macro-economic challenges. Elongated sales cycle, lower conversion rates and delays by customers in making purchase decisions are notable headwinds. Industry Description
The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include consulting and research solutions, security solutions, business support solutions, and systems engineering, as well as software application development solutions. The industry participants cater to varied end markets and customers, including intelligence, defense, U.S. government agencies, communications, banking, financial services, insurance, healthcare, and media and entertainment. Consultancy companies in the industry are helping clients in their ongoing digital transformation. They are providing end-to-end services, including application development, integration and maintenance; technology infrastructure management; and business process services.
3 Computer-Services Industry Trends to Watch
: The industry’s growth is expected to accelerate in the days ahead based on an increasing number of remote and hybrid workers. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures, enabling them to provide flexible, as well as easily adaptable hybrid solutions. The coronavirus-induced remote-working trend has led to increased demand for cloud and cost-efficient business support solutions, as well as other digital monetization solutions, which bode well for the industry. Remote & Hybrid Work Trends Boost Prospects
: Increasing number of cyber-attacks and related security risks are expected to keep the industry’s momentum alive. Government agencies are ideal targets for cyber-attacks, as they are entrusted with sensitive information. Therefore, the growing need for cyber security solutions and services in critical areas like defense, intelligence and civilian agencies of the U.S. government bodes well for the industry players. Growing Cyber Attacks is a Tailwind : The companies in this industry should benefit from increasingly complex network systems, and sensitive information environments in which governments, as well as businesses, operate. The industry participants are keeping pace with the global regulatory and business practice requirements, thereby helping customers incorporate the best practices, while complying with governmental and industry norms. Regulatory Compliance Drives Demand Zacks Industry Rank Indicates Solid Prospects
The Zacks Computer – Services industry is housed within the broader Zacks
Computer and Technology sector. It carries a Zacks Industry Rank #70, which places it in the top 28% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than two to one. The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Jul 31, 2022, the Zacks Consensus Estimate for the industry’s 2023 earnings has moved up 24.4%. 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 valuation picture. Industry Beats Sector & S&P 500
The Zacks Computer – Services industry has outperformed the broader Zacks Computer and Technology sector, as well as the S&P 500 Index, over the past year.
The industry has lost 8.1% over this period compared with the S&P 500’s fall of 13.5% and the broader sector’s decline of 25.8%. One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer stocks, we see that the industry is currently trading at 10.93X compared with the S&P 500’s 17.78X and sector’s forward-12-month P/E of 20.97X.
Over the last five years, the industry has traded as high as 12.26X, as low as 10.12X and at the median of 11.57X, as the charts below show. Forward 12-Month Price-to-Earnings (P/E) Ratio
2 Computer-Services Stocks to Buy Right Now
Perficient - This Zacks Rank #2 (Buy) company is riding on an expanding customer base. Strong demand for Perficient’s global delivery model has been a key catalyst. Acquisitions of Inflection Point Systems in Mexico and Ameex Technologies in India boost Perficient’s growth prospects. The Zacks Consensus Estimate for Perficient’s 2023 earnings has been unchanged at $4.79 per share over the past 30 days. The stock has lost 24.7% in the past year. Price and Consensus: PRFT
PDF Solutions: This software and professional services provider also has a Zacks Rank #2 at present. PDF Solutions is benefiting from strong bookings in Exensio, Cimetrix connectivity, and DFI systems, as well as an expanding partner base. The Zacks Consensus Estimate for PDF Solutions’ 2023 earnings has been unchanged at 69 cents per share over the past 30 days. The stock has gained 12.6% in the past year. Price and Consensus: PDFS