Business services providers thrive by solving complex operational challenges for their clients, allowing them to focus on their secret sauce. These firms have helped their customers unlock huge efficiencies, so it’s no surprise the industry has posted a 9% gain over the past six months, nearly mirrorring the S&P 500.
Although these companies have produced results, only a handful will thrive over the long term as AI-driven upstarts are rapidly taking share from the incumbents. With that said, here is one services stock boasting a durable advantage and two we’re steering clear of.
Two Business Services Stocks to Sell:
IBM (IBM)
Market Cap: $275.4 billion
With a corporate history spanning over a century and once known for its iconic mainframe computers, IBM (NYSE:IBM) provides hybrid cloud computing platforms, AI solutions, consulting services, and enterprise infrastructure to help businesses modernize their operations.
Why Does IBM Fall Short?
- Sizable revenue base leads to growth challenges as its 1.3% annual revenue increases over the last five years fell short of other business services companies
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 4.2% annually
At $294.76 per share, IBM trades at 24.6x forward P/E. If you’re considering IBM for your portfolio, see our FREE research report to learn more.
First Advantage (FA)
Market Cap: $2.58 billion
Processing approximately 100 million background checks annually across more than 200 countries and territories, First Advantage (NASDAQ:FA) provides employment background screening, identity verification, and compliance solutions to help companies manage hiring risks.
Why Is FA Not Exciting?
- Earnings per share fell by 4.6% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- 15.1 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
- Underwhelming 0.9% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam
First Advantage’s stock price of $14.75 implies a valuation ratio of 12.6x forward P/E. To fully understand why you should be careful with FA, check out our full research report (it’s free).
One Business Services Stock to Buy:
Fair Isaac Corporation (FICO)
Market Cap: $37 billion
Creator of the three-digit number that can determine whether you get a mortgage or credit card, Fair Isaac Corporation (NYSE:FICO) develops analytics software and the widely used FICO Score, which is the standard measure of consumer credit risk in the United States.
Why Is FICO a Top Pick?
- Offerings are pivotal for their customers' operations as its ARR has averaged 8.2% growth over the past two years
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its growing cash flow gives it even more resources to deploy
- Rising returns on capital show management is finding more attractive investment opportunities
Fair Isaac Corporation is trading at $1,544 per share, or 37.6x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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