Business services providers thrive by solving complex operational challenges for their clients, allowing them to focus on their secret sauce. But cutbacks in corporate spending and the threat of new AI products have kept sentiment in check, and over the past six months, the industry’s 3.8% return has trailed the S&P 500 by 4.6 percentage points.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Keeping that in mind, here are two services stocks boasting durable advantages and one best left ignored.
One Business Services Stock to Sell:
Dell (DELL)
Market Cap: $76.47 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 Are We Wary of DELL?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 3.7% over the last five years was below our standards for the business services sector
- Average ARR growth of 3.6% has disappointed, suggesting it’s had a hard time winning long-term deals and renewals
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.5 percentage points
Dell’s stock price of $113.17 implies a valuation ratio of 10.5x forward P/E. To fully understand why you should be careful with DELL, check out our full research report (it’s free).
Two Business Services Stocks to Buy:
Super Micro (SMCI)
Market Cap: $18.42 billion
Founded in Silicon Valley in 1993 and known for its modular "building block" approach to server design, Super Micro Computer (NASDAQ:SMCI) designs and manufactures high-performance, energy-efficient server and storage systems for data centers, cloud computing, AI, and edge computing applications.
Why Are We Bullish on SMCI?
- Market share has increased this cycle as its 74.1% annual revenue growth over the last two years was exceptional
- Enormous revenue base of $28.06 billion provides significant distribution advantages
- Free cash flow margin is now positive, showing the company is at an important crossroads
Super Micro is trading at $30.13 per share, or 13.4x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Huron (HURN)
Market Cap: $2.75 billion
Founded in 2002 during a time of significant regulatory change in corporate America, Huron Consulting Group (NASDAQ:HURN) is a professional services company that helps organizations develop growth strategies, optimize operations, and implement digital transformation solutions.
Why Are We Backing HURN?
- Annual revenue growth of 12.3% over the last five years was superb and indicates its market share increased during this cycle
- Free cash flow margin expanded by 9 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Rising returns on capital show the company is starting to reap the benefits of its past investments
At $172.12 per share, Huron trades at 20x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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