1 Services Stock to Target This Week and 2 We Turn Down

Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. But increasing competition from AI-driven upstarts has tempered enthusiasm, limiting the industry’s gains to 5.4% over the past six months. This return lagged the S&P 500’s 10.5% climb.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. With that said, here is one services stock poised to generate sustainable market-beating returns and two we’re swiping left on.

Two Business Services Stocks to Sell:

Connection (CNXN)

Market Cap: $1.47 billion

Starting as a small computer products seller in 1982 and evolving into a Fortune 1000 company, Connection (NASDAQ:CNXN) is a technology solutions provider that helps businesses and government agencies design, purchase, implement, and manage their IT infrastructure and systems.

Why Do We Think CNXN Will Underperform?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.5% annually
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

Connection’s stock price of $58.36 implies a valuation ratio of 15.9x forward P/E. Check out our free in-depth research report to learn more about why CNXN doesn’t pass our bar.

Robert Half (RHI)

Market Cap: $2.85 billion

With roots dating back to 1948 as the first specialized recruiting firm for accounting and finance professionals, Robert Half (NYSE:RHI) provides specialized talent solutions and business consulting services, connecting skilled professionals with companies across various fields.

Why Do We Steer Clear of RHI?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 9.4% annually over the last two years
2. Earnings per share fell by 11.6% annually over the last five years while its revenue was flat, showing each sale was less profitable
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $28.53 per share, Robert Half trades at 19.5x forward P/E. To fully understand why you should be careful with RHI, check out our full research report (it’s free).

One Business Services Stock to Watch:

TTM Technologies (TTMI)

Market Cap: $6.91 billion

As one of the world's largest printed circuit board manufacturers with facilities spanning North America and Asia, TTM Technologies (NASDAQ:TTMI) manufactures printed circuit boards (PCBs) and radio frequency (RF) components for aerospace, defense, automotive, and telecommunications industries.

Why Is TTMI Interesting?

1. Annual revenue growth of 10.5% over the last two years was superb and indicates its market share increased during this cycle
2. Estimated revenue growth of 11.1% for the next 12 months implies its momentum over the last two years will continue
3. Earnings per share grew by 32.4% annually over the last two years and trumped its peers

TTM Technologies is trading at $67 per share, or 25.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

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