The outsourcing industry is undergoing significant transformation, with trends such as nearshore outsourcing, cloud-based outsourcing, robotic process automation, and a focus on knowledge process outsourcing reshaping the global landscape.
So, I think investors could consider investing in top-rising outsourcing stocks Nomura Research Institute, Ltd. (NRILY), Adtalem Global Education Inc. (ATGE), and RCM Technologies, Inc. (RCMT).
The U.S. business process outsourcing market size is expected to grow at a CAGR of 9.1% from 2023 to 2030, driven by factors such as the increasing popularity of cloud computing, a growing inclination towards outsourcing in various industries, and the adoption of technologies like AI, resulting in sector-specific trends in finance, HR, and IT & telecommunication.
In addition, the on-demand staffing service market is anticipated to exhibit substantial growth, driven by increasing demand for flexible staffing solutions and the adoption of on-demand workforce models by businesses. The global recruitment process outsourcing market size is anticipated to grow at a CAGR of 16.1% from 2023 to 2030.
Moreover, indirectly driven by increased demand for economical and scalable learning solutions, the learning services outsourcing industry experiences noteworthy growth, emphasizing the importance of addressing skill gaps and adjusting to evolving workplace dynamics. The global learning services outsourcing market is estimated to grow at a CAGR of 8.4% to reach $30.70 billion by 2027.
Furthermore, the global IT outsourcing market is anticipated to expand at a CAGR of 9.3% to reach $1.42 trillion by 2031.
Considering these conducive trends, let’s look at the fundamentals of the three best outsourcing stocks.
Nomura Research Institute, Ltd. (NRILY)
Based in Tokyo, Japan, NRILY provides management and system consulting, financial IT solutions for institutions, industrial IT solutions for various sectors, and IT platform services globally. It also operates data centers while providing information security services.
NRILY’s trailing-12-month EBITDA margin of 22.22% is 142.9% higher than the industry average of 9.15%. Its 10.92% trailing-12-month net income margin is 397.5% higher than the 2.20% industry average.
For the six months ended September 30, 2023, NRILY generated revenue and gross profit of ¥362.07 billion ($2.47 billion) and ¥128.37 billion ($873.99 million), up 6.8% and 9.3% year-over-year, respectively.
The company reported EPS of ¥64.09, up 5.7% from the previous-year quarter. Its cash and cash equivalents at the end of the period increased 7.8% from the prior-year quarter to ¥125.21 billion ($852.44 million).
Street expects NRILY's revenue to grow 53.1% year-over-year to $5.02 billion for the fiscal year ending March 2024.
NRILY’s shares have gained 28.2% over the past year and 19.5% year-to-date to close the last trading session at $28.30.
NRILY’s POWR Ratings reflect its positive prospects. 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 a B grade for Stability and Quality. Within the A-rated Outsourcing - Tech Services industry, it is ranked #4 out of nine stocks.
In addition to the POWR Ratings stated above, one can access NRILY’s additional Growth, Value, Momentum, and Sentiment ratings here.
Adtalem Global Education Inc. (ATGE)
ATGE is a worldwide workforce solutions provider with three segments: Chamberlain (focused on nursing and health professions education); Walden (offering online degrees in various fields); and Medical and Veterinary (providing programs in the medical and veterinary education sector).
ATGE’s trailing-12-month gross profit margin of 55.13% is 55.1% higher than the industry average of 35.56%. Its 13.80% trailing-12-month EBIT margin is 84.9% higher than the 7.47% industry average.
For the first quarter, which ended September 30, 2023, ATGE’s revenue grew 4.1% year-over-year to $368.85 million. The company's adjusted operating income and EBITDA stood at $63.61 million and $80.54 million, respectively. Moreover, its adjusted EPS increased 3.3% from the prior-year quarter to $0.93.
For the fiscal year 2024, the company provided guidance with an expected revenue range of $1.47 billion to $1.53 billion. Additionally, the adjusted EPS is projected to be within the range of $4.25 to $4.45.
ATGE’s revenue and EPS are expected to grow 3.2% and 25.6% year-over-year to $376.20 million and $1.29 for the fourth quarter ending June 2024. The company surpassed the revenue and EPS estimates in each of the trailing four quarters, which is impressive.
ATGE’s shares increased 46.9% over the past year and 67.3% year-to-date to close the last trading session at $59.38.
ATGE’s POWR Ratings reflect this sound outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
ATGE has a B grade for Growth and Quality. Within the A-rated Outsourcing - Education Services industry, it is ranked #4 of 20 stocks.
Click here for ATGE’s additional Value, Momentum, Stability, and Sentiment ratings.
RCM Technologies, Inc. (RCMT)
RCMT provides business and technology solutions globally through three segments: Engineering; Specialty HealthCare; and Life Sciences and Information Technology. The company's diverse range of services encompasses engineering, healthcare staffing, and life sciences solutions, serving a wide array of industries.
On May 15, 2023, RCMT inaugurated the RCM Energy Services Operation Centre in Germany, marking a strategic move to expand globally and become a preferred engineering partner for Europe's energy transition.
The focus includes contributing to the modernization of the energy grid, particularly in addressing the increasing demands for electrical infrastructure changes in the European Union.
RCMT’s trailing-12-month levered FCF margin of 11.35% is 88.8% higher than the industry average of 6.01%. Its 16.22% trailing-12-month ROTA is 230.2% higher than the 4.91% industry average.
For the third quarter, which ended September 30, 2023, RCMT’s revenue stood at $58.05 million. The company's net income and EPS grew 6.8% and 39.4% year-over-year to $3.76 million and $0.46, respectively. Also, its adjusted EBITDA stood at $4.62 million.
Analysts expect RCMT’s revenue and EPS to grow 12% and 23.6% year-over-year to $75.20 million and $0.54 for the first quarter ending March 2024, respectively. The company surpassed the revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 81.8% over the past year and 117.3% year-to-date to close the last trading session at $26.82.
RCMT’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
RCMT has a B for Value, Sentiment, and Quality. Within the A-rated Outsourcing - Staffing Services industry, it is ranked first of 20 stocks.
To see RCMT’s additional POWR Ratings for Growth, Momentum, and Stability, click here.
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NRILY shares were trading at $27.84 per share on Tuesday afternoon, down $0.47 (-1.64%). Year-to-date, NRILY has gained 18.12%, versus a 20.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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