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Computer Services Industry's Near-Term Outlook Looks Bright

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The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include national security solutions, business support solutions, systems engineering, and 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.

Here are the industry’s three major themes:
 

  • Advancements in areas like IoT, AI, ML and robotics process automation (RPA) are trendsetters in the communications industry. Notably, these developments are spurring up demand for cost-efficient business support solutions and other digital monetization solutions.
     
  • Government agencies are ideal targets of cyber attacks, as they are entrusted with sensitive information. The increasing number of cyber attacks and related security risks are expected to keep the industry’s momentum alive. Notably, 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 participants.
     
  • The companies in this industry should also benefit from increasingly complex network systems and sensitive information environments in which governments and businesses operate. The industry participants are keeping pace with global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.

Zacks Industry Rank Indicates Bright Prospects

 

The Zacks Computer - Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #48, which places it in the top 19% 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 solid 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 2 to 1.

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 Outperforms Sector but Lags S&P 500

The Zacks Computer - Services industry has underperformed the Zacks S&P 500 composite but outperformed the broader sector in the past year.

The industry has gained 2.3% over this period compared with the S&P 500’s rise of 2.5% and the broader sector’s return of 1.4%.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing computer services stocks, the industry is currently trading at 19.69X versus the S&P 500’s 17.2X and the sector’s 19.69X.

Over the past five years, the industry has traded as high as 26.89X, as low as 15.11X and at the median of 22.41X, as the charts below show.

Price-to-Earnings (P/E) Ratio (F1)

 

Price-to-Earnings (P/E) Ratio (F1)

 

Bottom Line

Growing adoption of cyber security solutions, stringent regulatory requirements and the need for business automation solutions should continue to drive the industry’s growth.

Here, we present three stocks that either have a Zacks Rank #1 (Strong Buy) or Rank 2 (Buy). These stocks are well positioned to outperform the market. You can see the complete list of today’s Zacks #1 Rank stocks here.

Located near Boston in Woburn, MA, LogMeIn ((LOGM - Free Report) ), a provider of on-demand, remote-connectivity and support solutions to small businesses, has seen a 17.4% decline in its share price over the past year. For this Zacks Rank #1 stock, the Zacks Consensus Estimate for its current fiscal year earnings has increased 4.1% to $4.02 over the past 60 days. 

Price and Consensus: LOGM

 

Perficient, Inc. ((PRFT - Free Report) ), a digital transformation consulting firm, sports a Zacks Rank #1. The stock has gained 29.4% in the past year. The Zacks Consensus Estimate for its current fiscal year earnings has increased 9% to $1.58 over the past 60 days.

Price and Consensus: PRFT

 

Headquartered in CO, CSGS Systems International, Inc. ((CSGS - Free Report) ) is a provider of business support solutions primarily to the communications industry. It has seen a 29.8% increase in its share price over the past year. For this Zacks Rank #2 stock, the Zacks Consensus Estimate for current fiscal-year earnings has increased 2.2% to $2.83 over the past 60 days.

Price and Consensus: CSGS

 

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