Business services providers use their specialized expertise to help enterprises streamline operations and cut costs. Furthermore, the demand for their offerings is rising as more clients outsource non-core functions, a trend that has enabled the industry to return 18.4% over the past six months. At the same time, the S&P 500 was up 9.3%.
Regardless of these results, investors must exercise caution as many companies in this space are sensitive to the ebbs and flows of the broader economy. With that said, here is one services stock poised to generate sustainable market-beating returns and two best left ignored.
Two Business Services Stocks to Sell:
MillerKnoll (MLKN)
Market Cap: $1.07 billion
Created through the 2021 merger of industry icons Herman Miller and Knoll, MillerKnoll (NASDAQ: MLKN) designs, manufactures, and distributes interior furnishings for offices, healthcare facilities, educational settings, and homes worldwide.
Why Does MLKN Fall Short?
- Muted 2.9% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 11% annually
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
MillerKnoll’s stock price of $21.15 implies a valuation ratio of 10.1x forward P/E. Dive into our free research report to see why there are better opportunities than MLKN.
Cogent (CCOI)
Market Cap: $713.7 million
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 Do We Avoid CCOI?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.1% annually over the last two years
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Cogent is trading at $14.61 per share, or 9x forward EV-to-EBITDA. If you’re considering CCOI for your portfolio, see our FREE research report to learn more.
One Business Services Stock to Buy:
Dell (DELL)
Market Cap: $253.7 billion
Founded by Michael Dell in his University of Texas dorm room in 1984 with just $1,000, Dell Technologies (NYSE: DELL) provides hardware, software, and services that help organizations build their IT infrastructure, manage cloud environments, and enable digital transformation.
Why Do We Love DELL?
- Annual revenue growth of 22.2% over the past two years was outstanding, reflecting market share gains this cycle
- Share buybacks catapulted its annual earnings per share growth to 38.8%, which outperformed its revenue gains over the last two years
- Returns on capital are growing as management capitalizes on its market opportunities
At $422.55 per share, Dell trades at 23.5x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
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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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
