2 Business Services Stocks to Consider Amid Industry Woes

About the Industry

The Zacks Business Services industry comprises companies that offer a diverse range of services, including specialty rentals, supply chain solutions, e-commerce support, technology services, document and data management, digital audience measurement, voice and analytics services, and business transformation solutions. The pandemic reshaped how these firms operate and interact with clients. In response, the industry's current emphasis is on streamlining operations through digital transformation, technology integration, data-driven strategies and stronger cybersecurity. As the economy recovers, service providers are actively refining their strategic approaches to capitalize on emerging opportunities. This involves reassessing business priorities, pinpointing growth drivers and targeting specific end markets to remain competitive.

What's Shaping the Future of the Business Services Industry?

Demand Stability: Having evolved into a mature and resilient ecosystem, the industry continues to experience consistent demand for its services. In this post-pandemic era, revenues, operating income and cash flows have not only recovered but surpassed pre-pandemic levels. This financial strength has positioned most industry players to sustain reliable dividend payouts, reinforcing long-term investor confidence in a structurally sound and future-ready sector.

AI Advancement: The rapid advancement and adoption of artificial intelligence and automation technologies are reshaping how business services are delivered. While these innovations promise enhanced efficiency, cost reduction and faster turnaround times, they also pose challenges such as workforce displacement and the need for constant upskilling. Companies that effectively integrate AI while managing the human impact will likely lead the future of the industry.

Stagnant Service Activities: The latest Services PMI, as reported by the Institute for Supply Management, signaled stagnation in U.S. services activity, with the index holding steady at 50 percent in September, the breakeven point between growth and contraction for the first time since 2010. This flat reading, down from 52 percent in August, indicates that the sector’s expansion momentum has stalled amid persistent inflationary pressures, cautious business sentiment, and softer consumer demand, suggesting potential headwinds for near-term economic growth.

Zacks Industry Rank Indicates Solid Near-Term Prospects

The Business-Services industry is housed within the broader Business Services sector. It carries a Zacks Industry Rank #180, which places it in the top 26% of 243 Zacks industries.

The group’s Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

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

The Zacks Business Services industry has underperformed the broader sector and the S&P 500 in the past 12-month period.

The industry has declined 7.5% compared with the S&P 500 composite’s growth of 22.7%. The broader sector has declined 2.2% 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 19.73X compared with the S&P 500’s 24.03X and the sector’s 20.42X.

Over the past five years, the industry has traded as high as 28.8X and as low as 26.24X, with the median being 27.51X, as the charts below show.

Price to Forward 12-Month P/E Ratio

2 Service Stocks in Focus

We have presented two stocks that are well-positioned to grow in the near term.

Rentokil: This essential hygiene, pest control and workplace services provider is executing steadily and continues to progress across its key markets. The company benefited from ongoing improvements in sales execution and an evolving digital marketing strategy, which have driven stronger lead generation and overall sales momentum in North America.

Its satellite branch expansion remains on schedule, while the gradual integration of commercial branches and ongoing cost efficiency initiatives underline disciplined management. Together, these actions demonstrate Rentokil’s ability to strengthen its competitive position, enhance operational effectiveness, and sustain growth momentum across both its North American and international businesses.

RTO carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2025 EPS has remained unchanged in the past 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thomson Reuters: The content and technology company demonstrates consistent momentum and operational discipline. It continues to focus on innovation across its portfolio, highlighted by the successful launch of CoCounsel Legal and CoCounsel for tax, audit and accounting. These advanced AI-driven solutions reflect Thomson Reuters’ commitment to integrating its trusted content and deep industry expertise with transformative technology.

By expanding the capabilities of Westlaw and enhancing guided workflows, TRI is strengthening its leadership in professional information services and reaffirming its role as a key enabler of productivity and innovation for legal, tax, and accounting professionals worldwide.

TRI carries a Zacks Rank #2. The Zacks Consensus Estimate for 2025 EPS has remained unchanged in the past 60 days.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research