The outsourcing market has been experiencing significant growth worldwide due growing number of businesses outsourcing operations, allowing them to emphasize core capabilities and improve their business. So, investors could buy outsourcing stocks, Nomura Research Institute, Ltd. (NRILY), Franklin Covey Co. (FC), and RCM Technologies, Inc. (RCMT) for stable profits.
An increasingly competitive environment from new outsourcing sites, along with the emphasis on firms running more cost-effectively, is expected to fuel the business process outsourcing market growth. Furthermore, the business process outsourcing market value is being propelled by aspects such as businesses' increased attention on enhancing efficiency and business agility lowering operational costs in order to withstand the continuously shifting business dynamics.
The global business process outsourcing market is expected to grow at a CAGR of 8.9% until 2030.
In addition, the IT services outsourcing market is expected to grow well due to an increased demand for enhanced digital transformation and effective digital solutions. Also, increased use of Internet of things and the integration with various platforms is expected to create more demand for the services.
The global IT services outsourcing is expected to grow at a CAGR of 8.2% until 2032.
Moreover, there is a rising demand for personalized learning and low-cost and scalable learning systems. Educators are outsourcing to improve learning and development, enhance efficiency, address skill shortages, and reduce costs. The global learning services outsourcing market is anticipated to grow at a CAGR of 5.6% until 2030.
Considering these conducive trends, let's take a look at the fundamentals of the three best outsourcing stocks.
Nomura Research Institute, Ltd. (NRILY)
Headquartered in Tokyo, Japan, NRILY offers consulting, financial, and industrial IT solutions and IT platform services. Its segments include Consulting, Financial IT Solutions, Industrial IT Solutions, and IT Infrastructure Services. The company provides management and system consulting, system development, and operational solutions for various sectors, such as finance, manufacturing, and public services.
NRILY’s trailing-12-month ROCE of 21.55% is 823.8% higher than the 2.33% industry average. Its trailing-12-month ROTA of 9.55% is significantly higher than the industry average of 0.81%.
NRILY’s revenue for the six months ended September 30, 2023, increased 6.8% year-over-year to ¥362.07 billion ($2.41 billion). The company’s operating profit increased 6.5% over the prior-year period to ¥58.87 billion ($392.10 million). Also, its profit attributable to owners of parent and EPS came in at ¥37.66 billion ($250.83) and ¥64.09, up 5% and 5.7% year-over-year, respectively.
The consensus revenue estimate of $4.92 billion for the year ending March 2024 represents a 50% increase year-over-year. Shares of NRILY has gained 22.5% over the past year to close the last trading session at $27.20.
NRILY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
NRILY has an A grade for Stability and a B in Quality. It is ranked #4 out of 9 stocks in the A-rated Outsourcing - Tech Services industry.
Click here to see the additional POWR Ratings for NRILY (Momentum, Value, Sentiment, and Growth).
Franklin Covey Co. (FC)
FC provides training and consulting services in the areas of execution, sales performance, productivity, customer loyalty, and educational improvement for organizations and individuals worldwide. The company operates through Direct Offices; International Licensees; and Education Practice segments.
FC’s trailing-12-month gross profit margin of 76.20% is 150.2% higher than the industry average of 30.45%. Its trailing-12-month levered FCF margin of 13.81% is 114.5% higher than the industry average of 6.44%.
During the fiscal 2024 first quarter that ended November 30, 2023, FC’s revenue stood at $68.40 million. Its gross profit stood at $52.28 million. Furthermore, FC’s net income stood at $11.29 million and $0.37 per share up marginally year-over-year, respectively.
The consensus revenue estimate of $79.70 million for the third quarter ending May 2024 represents 11.6% increase year-over-year. Its EPS is expected to increase 46.1% year-over-year to $0.47 for the same quarter. It surpassed EPS estimates in three of four trailing quarters, which is impressive.
FC’s shares have gained 5.3% over the past nine months to close the last trading session at $38.69.
FC’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Quality. The stock is ranked #7 out of 21 stocks in the A-rated Outsourcing - Education Services industry.
Beyond what is stated above, we’ve also rated for Stability, Growth, Value, Sentiment, and Momentum. Get all FC ratings here.
RCM Technologies, Inc. (RCMT)
RCMT provides business and technology solutions globally through three segments: Engineering; Specialty Health Care; and Life Sciences and Information Technology. The company’s diverse services encompass engineering, healthcare staffing, and life sciences solutions, serving various industries.
In terms of the trailing-12-month net income margin, RCMT’s 6.25% is 6% higher than the 5.90% industry average. Likewise, its 56.50% trailing-12-month ROCE is 358.7% higher than the 12.32% industry average.
RCMT’s revenue for the fiscal third quarter ended September 30, 2023, stood at $58.05 million. Its adjusted EBITDA came in at $4.62 million. The company’s net cash provided by operating activities rose significantly year-over-year to $11.04 million. Its net income rose 6.8% over the prior-year quarter to $3.76 million. Also, its EPS came in at $0.46, representing an increase of 39.4% year-over-year.
Analysts expect RCMT’s EPS and revenue for the quarter ending December 31, 2024, to increase 14.4% and 9.6% year-over-year to $2.22 and $2289.88 million, respectively. It surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
The stock gained 81.3% over the past nine months to close the last trading session at $28.19.
RCMT’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
The stock has an A grade for Quality and a B in Value. It is ranked #4 in the 18-stock in the A-rated Outsourcing - Staffing Services industry.
To access RCMT’s additional ratings for Stability, Growth, Sentiment, and Momentum, Click here.
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NRILY shares were trading at $27.09 per share on Wednesday afternoon, down $0.11 (-0.40%). Year-to-date, NRILY has declined -6.78%, versus a 4.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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