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Business Services Outlook Bright on Economy Reopening Optimism
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The companies grouped under the Business Services category 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.
Here are the industry’s three major themes:
The industry is a major beneficiary of the broader economy. It is mature, and its revenues and cashflow have grown steadily over the past few years, enabling most industry players to pay out stable dividends.
However, with the coronavirus pandemic hitting the economy hard, and slowing down manufacturing and non-manufacturing activities, demand for business services nosedived over the past four months. The Purchasing Managers' Index (PMI) measured by Institute of Supply Management (ISM) stood at 43.1%, 41.5%, 49.1% and 50.1% in May, April, March and February, respectively. The ISM-measured Non-Manufacturing Index (NMI) was 45.4%, 41.8%, 52.5% and 57.3%, respectively, in May, April, March and February. Notably, a reading below 50% indicates contraction in economic activity.
With economies around the world reopening gradually, and the United States also gearing up to do so, demand is anticipated to rise steadily. This is evident from the significant rise in both PMI and NMI from April to May. However, with the pandemic showing no signs of dissipating any time soon, there remains much uncertainty about the duration and extent to which the crisis can weigh on the economy and markets. Thus, the process of the economy and the industry coming back to their old glory is most likely to be prolonged.
Zacks Industry Rank Indicates Bright Prospects
The Business-Services industry is housed within the broader Business Services sector. It carries a Zacks Industry Rank #85, which places it in the top 33% 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 outperformance in the near term. 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 have the potential to outperform the market, it’s worth taking a look at the industry’s performance and current valuation.
Industry Underperforms the S&P 500 and Sector
The Zacks Business-Services industry has underperformed the S&P 500 composite as well as the broader Zacks Business Services sector over the past year.
The industry has declined 19.8% over this period as against the S&P 500 composite’s rally of 9.8%. The broader sector has gained 2.4% during the same time period.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing business-services stocks, the industry is currently trading at 32.29 compared with the S&P 500’s 20.08 and the sector’s 29.56.
Over the past five years, the industry has traded as high as 220.27X, as low as 26.27X and at the median of 37.63X, as the charts below show.
Price to Forward 12 Months P/E Ratio
Bottom Line
The coronavirus-hit business services industry will likely gain strength as the United States and economies around the world reopen. The process, nonetheless, is expected to be slow as the pandemic and its economic impact will not dissipate any time soon.
PFSweb, Inc. : The Zacks Consensus Estimate for this omni-channel commerce solutions provider's 2020 earnings per share (EPS) has moved up 12.5% over the past 60 days.
Price and Consensus: PFSW
SPS Commerce, Inc. (SPSC - Free Report) : The Zacks Consensus Estimate for this cloud-based supply-chain management solutions provider's current-year EPS has moved 0.7% north in the past two months.
Price and Consensus: SPSC
Vectrus, Inc. : The Zacks Consensus Estimate for this facility, logistics, information technology and network communication services provider's current-year EPS has remained unchanged over the past two months.
Price and Consensus: VEC
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
Image: Bigstock
Business Services Outlook Bright on Economy Reopening Optimism
The companies grouped under the Business Services category 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.
Here are the industry’s three major themes:
Zacks Industry Rank Indicates Bright Prospects
The Business-Services industry is housed within the broader Business Services sector. It carries a Zacks Industry Rank #85, which places it in the top 33% 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 outperformance in the near term. 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 have the potential to outperform the market, it’s worth taking a look at the industry’s performance and current valuation.
Industry Underperforms the S&P 500 and Sector
The Zacks Business-Services industry has underperformed the S&P 500 composite as well as the broader Zacks Business Services sector over the past year.
The industry has declined 19.8% over this period as against the S&P 500 composite’s rally of 9.8%. The broader sector has gained 2.4% during the same time period.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing business-services stocks, the industry is currently trading at 32.29 compared with the S&P 500’s 20.08 and the sector’s 29.56.
Over the past five years, the industry has traded as high as 220.27X, as low as 26.27X and at the median of 37.63X, as the charts below show.
Price to Forward 12 Months P/E Ratio
Bottom Line
The coronavirus-hit business services industry will likely gain strength as the United States and economies around the world reopen. The process, nonetheless, is expected to be slow as the pandemic and its economic impact will not dissipate any time soon.
Below, we have mentioned three stocks from the industry, which investors should add to their portfolio, as these currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PFSweb, Inc. : The Zacks Consensus Estimate for this omni-channel commerce solutions provider's 2020 earnings per share (EPS) has moved up 12.5% over the past 60 days.
Price and Consensus: PFSW
SPS Commerce, Inc. (SPSC - Free Report) : The Zacks Consensus Estimate for this cloud-based supply-chain management solutions provider's current-year EPS has moved 0.7% north in the past two months.
Price and Consensus: SPSC
Vectrus, Inc. : The Zacks Consensus Estimate for this facility, logistics, information technology and network communication services provider's current-year EPS has remained unchanged over the past two months.
Price and Consensus: VEC
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>