Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. Still, investors are uneasy as firms face challenges from AI-driven disruptors and tightening corporate budgets. These doubts have caused the industry to lag recently as services stocks have collectively shed 5.3% over the past six months. This drawdown was disappointing since the S&P 500 climbed 3.1%.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, 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:
Cogent (CCOI)
Market Cap: $1.05 billion
Operating a massive network spanning 20,000 miles of fiber optic cable and connecting to over 3,200 buildings worldwide, Cogent Communications (NASDAQ: CCOI) provides high-speed Internet access, private network services, and data center colocation to businesses and bandwidth-intensive organizations across 54 countries.
Why Are We Out on CCOI?
- Sales trends were unexciting over the last two years as its 1.8% annual growth was below the typical business services company
- Diminishing returns on capital suggest its earlier profit pools are drying up
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Cogent is trading at $21.91 per share, or 10.2x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than CCOI.
Cisco (CSCO)
Market Cap: $306.9 billion
Founded in 1984 by a husband and wife team who wanted computers at Stanford to talk to computers at UC Berkeley, Cisco (NASDAQ: CSCO) designs and sells networking equipment, security solutions, and collaboration tools that help businesses connect their systems and secure their digital operations.
Why Does CSCO Worry Us?
- The company has faced growth challenges as its 1.6% annual revenue increases over the last two years fell short of other business services companies
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.9 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Cisco’s stock price of $77.58 implies a valuation ratio of 17.8x forward P/E. To fully understand why you should be careful with CSCO, check out our full research report (it’s free).
One Business Services Stock to Watch:
Barrett (BBSI)
Market Cap: $696.1 million
Operating as a professional employer organization (PEO) that serves over 8,000 companies with more than 120,000 worksite employees, Barrett Business Services (NASDAQ: BBSI) provides management solutions that help small and mid-sized businesses handle human resources, payroll, workers' compensation, and other administrative functions.
Why Do We Like BBSI?
- Annual revenue growth of 7.7% over the last two years beat the sector average and underscores the unique value of its offerings
- Free cash flow margin jumped by 6.1 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Industry-leading 54.7% return on capital demonstrates management’s skill in finding high-return investments
At $27.61 per share, Barrett trades at 15.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don't just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn't over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
