1 Services Stock for Long-Term Investors and 2 That Underwhelm

Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. Furthermore, the demand for their offerings is rising as more clients outsource non-core functions, a trend that has enabled the industry to return 14.9% over the past six months, almost identical to the S&P 500.

Nevertheless, investors should tread carefully as many companies in this space are cyclical due to their reliance on corporate spending budgets. Taking that into account, here is one services stock boasting a durable advantage and two that may face trouble.

Two Business Services Stocks to Sell:

Exponent (EXPO)

Market Cap: $3.48 billion

With a team of over 800 consultants holding advanced degrees in 90+ technical disciplines, Exponent (NASDAQ:EXPO) is a science and engineering consulting firm that investigates complex problems and provides expert analysis for clients across various industries.

Why Are We Cautious About EXPO?

1. 3.3% annual revenue growth over the last two years was slower than its business services peers
2. Performance over the past two years shows its incremental sales were less profitable as its earnings per share were flat
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Exponent is trading at $68.88 per share, or 33x forward P/E. To fully understand why you should be careful with EXPO, check out our full research report (it’s free).

Zebra (ZBRA)

Market Cap: $15.97 billion

Taking its name from the black and white stripes of barcodes, Zebra Technologies (NASDAQ:ZBRA) provides barcode scanners, mobile computers, RFID systems, and other data capture technologies that help businesses track assets and optimize operations.

Why Is ZBRA Risky?

1. Sales tumbled by 2.9% annually over the last two years, showing market trends are working against its favor during this cycle
2. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
3. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term

Zebra’s stock price of $313.90 implies a valuation ratio of 20.6x forward P/E. If you’re considering ZBRA for your portfolio, see our FREE research report to learn more.

One Business Services Stock to Buy:

IonQ (IONQ)

Market Cap: $22.37 billion

Founded by quantum physics pioneers from the University of Maryland and Duke University in 2015, IonQ (NYSE:IONQ) develops quantum computers that process information using trapped ions to solve complex computational problems beyond the capabilities of traditional computers.

Why Do We Love IONQ?

1. Annual revenue growth of 78.9% over the last two years was superb and indicates its market share increased during this cycle
2. Adjusted operating margin improvement of 5,803.2 percentage points over the last five years demonstrates its ability to scale efficiently
3. Negative free cash flow margin has improved over the last five years, showing the company is one step closer to financial self-sufficiency

At $74.57 per share, IonQ trades at 138.3x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.

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