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, and over the past six months, the industry has pulled back by 3.9%. This drop was worse than the S&P 500’s 1% loss.
Investors should tread carefully as many of these companies are also cyclical, and any misstep can have you catching a falling knife. Keeping that in mind, here are three services stocks best left ignored.
ICF International (ICFI)
Market Cap: $1.59 billion
Operating at the intersection of policy, technology, and implementation for over five decades, ICF International (NASDAQ:ICFI) provides professional consulting services and technology solutions to government agencies and commercial clients across energy, health, environment, and security sectors.
Why Do We Avoid ICFI?
- Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 1.6% for the past two years was weak
- Sales are projected to tank by 7.1% over the next 12 months as demand evaporates
- 5.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
ICF International is trading at $86.10 per share, or 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than ICFI.
CSG (CSGS)
Market Cap: $1.81 billion
Powering billions of critical customer interactions annually, CSG Systems (NASDAQ:CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.
Why Do We Pass on CSGS?
- 3.4% annual revenue growth over the last two years was slower than its business services peers
- Anticipated sales growth of 2.2% for the next year implies demand will be shaky
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $67.09 per share, CSG trades at 13.7x forward P/E. To fully understand why you should be careful with CSGS, check out our full research report (it’s free).
Verisk (VRSK)
Market Cap: $42.18 billion
Processing over 2.8 billion insurance transaction records annually through one of the world's largest private databases, Verisk Analytics (NASDAQ:VRSK) provides data, analytics, and technology solutions that help insurance companies assess risk, detect fraud, and make better business decisions.
Why Do We Think Twice About VRSK?
- 1.9% annual revenue growth over the last five years was slower than its business services peers
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 8.8% annually
Verisk’s stock price of $301.79 implies a valuation ratio of 41.7x forward P/E. Read our free research report to see why you should think twice about including VRSK in your portfolio.
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