Here are 3 Staffing Stocks to Consider Despite Industry Woes
The Staffing Firms industry’s prospects look mixed. While service activities are robust at the moment, their positive impacts are being challenged by contracting economic activities in the manufacturing sector. HireQuest, Inc. HQI, Kelly Services, Inc. KELYA and RCM Technologies, Inc. RCMT are benefiting from the rise in the adoption of remote work and the increasing use of technology.
About the Industry
The Zacks Staffing industry is a diverse sector encompassing companies that offer a comprehensive range of human resources and workforce solutions. These services cover various aspects of personnel management, including employment screening, recruitment services for both temporary and long-term job placements, retirement planning, human capital management, payroll administration, performance evaluation, organizational planning and financial management. Additionally, some firms within this industry provide specialized services, such as staffing and risk consulting, professional staffing and global business solutions tailored to the needs of small to medium-sized enterprises. They also offer organizational consulting services with a global reach, catering to a wide and varied client base, which includes domestic and international businesses across differen
What's Shaping the Future of the Business Services Industry?
Stable Demand: The industry is mature, and the consistency in demand for services has been healthy for some time now. A gradual recovery to the pre-pandemic levels is expected for revenues, income and cash flows, assisting most industry players to pay out stable dividends.
Increased Adoption of Remote Work & Hybrid Models: The significant rise in remote work since the pandemic has led staffing agencies to focus on flexible staffing solutions, including remote and hybrid models. These adaptations conform with the desires of both clients and job seekers for improved work-life balance. Given the sustained prevalence of remote work, staffing agencies are expected to prioritize and meet evolving workplace preferences in an efficient manner.
Tech-Driven Staffing Solutions on the Rise: The staffing sector is using technology to optimize operations, enhance efficiency and deliver top-notch services. The rising adoption of AI-driven tools and platforms is making the process of attracting, evaluating and onboarding IT talents more efficient. The increasing adoption of social media and Big Data is being observed as well. Video-conferencing platforms, such as Zoom and Microsoft Teams, facilitate remote communication, and cloud and blockchain technologies bolster HR data security. This ensures a continued demand for staffing services.
Zacks Industry Rank Suggests Sluggish Near-Term Prospects
The Zacks Staffing Firms industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #215. This rank places it in the bottom 14% of 251 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates a continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock market performance and current valuation.
Industry Underperforms Sector & S&P 500
The Zacks Staffing Firms industry has underperformed the S&P 500 and the broader sector over the past year.
The industry has declined 3% against the S&P 500 composite’s growth of 26.9% and the broader sector’s rise of 20.9% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing staffing stocks because of their high debt levels, the industry is currently trading at 7.96X compared with the S&P 500’s 18.97X and the sector’s 29.23X.
Over the past five years, the industry has traded as high as 13.27X and as low as 3.63X, with the median being 6.96X, as the charts below show.
EV-to-EBITDA
3 Staffing Stocks Poised for Growth
We have presented three stocks that are anticipated to grow in the near term.
RCM Technologies: This business and technology solutions provider is benefiting from an overall improvement in its segmental performance. RCMT's efforts to solutions integrated approach are resulting in continued progress. The HCM practice is one of the premier partners in the industry and the company has surpassed implementation quotas for one strategic client for the 8th straight quarter.
RCMT's life sciences segment is riding on its ability to assist clients in bringing new products to market faster and cheaper, while improving compliance reporting. The engineering segment is gaining from solid backlogs and high client satisfaction as the company continues to execute large engineering substation projects.
RCMT flaunts a Zacks Rank #1 (Strong Buy) at present. The Zacks Consensus Estimate for its 2024 bottom line has increased 2.2% in the past 60 days. RCMT shares have gained 11.9% in the past month.
Price and Consensus: RCMT
HireQuest: This temporary staffing services provider in the United States is gaining from sustained profitability as it continues to mitigate costs, leverage its unique franchising model and execute its business strategy. The company is driving better results as the market for staffing solutions is slowly recovering from what has been a difficult environment for the overall industry.
M&A activities are major parts of HireQuest’s growth strategy. The company’s acquisitions have allowed it to penetrate both new geographic regions and staffing verticals, which are expanding its addressable market significantly.
HQI currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its 2024 bottom line has increased 1.7% in the past 60 days. Itsshares have gained 22.5% in the past month. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: HQI
Kelly Services: This workforce solutions provider to various industries is riding on its growth initiatives that are helping the company capture market share. The professional & industrial business segment is benefiting from stabilized demand and an improved localized delivery model.
The strength of KELYA’s network of physical branch locations, coupled with Kelly Now mobile, is generating positive momentum, with both clients and talent assisting in growing a pipeline for its new industrial and commercial staffing business. The company is witnessing a significant increase in second-quarter 2024 revenues, driven by sustained growth in customer wins, rising demand from existing customers and an improving fill rate.
KELYA currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for 2024 EPS has increased 20.3% in the past 60 days. KELYA shares have gained 2.4% in the past month.
Price and Consensus: KELYA
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
HireQuest, Inc. (HQI) : Free Stock Analysis Report
Kelly Services, Inc. (KELYA) : Free Stock Analysis Report
RCM Technologies, Inc. (RCMT) : Free Stock Analysis Report