As we look ahead this year, businesses are formulating plans with a keen eye on emerging business process outsourcing trends. Outsourcing is expected to help harness the potential to achieve greater personalization, predictive analytics, and deeper integration across systems.

I think outsourcing stocks Cintas Corporation (CTAS), Pearson plc (PSO), and GEE Group Inc. (JOB) might be worth keeping track of this year.

Increasing use of technology is driving the growth of the BPO market in the US. BPO providers are leveraging technologies such as automation, artificial intelligence, and machine learning to provide more efficient and cost-effective services. This has resulted in a shift towards more complex services such as data analytics and digital marketing.

Revenue in the Business Process Outsourcing market is expected to grow at a CAGR of 3.2% until 2028.

In addition, the tech outsourcing industry is evolving with the shift to cloud-based services, offering asset-free, on-demand IT solutions. Companies are focusing on cost optimization and adopting multi-cloud strategies to reduce risk.

Moreover, the rising popularity of cloud computing in business process outsourcing is one of the prominent factors influencing the adoption of BPO services. The IT Outsourcing market is expected to grow from $585.57 billion in 2023 to $701.88 billion by 2028, at a CAGR of 3.7%.

Considering these conducive trends, let’s look at the fundamentals of the three best outsourcing stocks.

Cintas Corporation (CTAS)

CTAS provides corporate identity uniforms and related business services primarily in the United States, Canada, and Latin America. It operates through Uniform Rental and Facility Services; First Aid and Safety Services; and All Other segments.

CTAS’s trailing-12-month EBITDA margin of 24.17% is 76.3% higher than the industry average of 13.72%. Its 15.57% trailing-12-month net income margin is 155.8% higher than the 6.09% industry average.

In the fiscal second quarter that ended on November 30, 2023, CTAS’s total revenue increased 9.3% year-over-year to $2.38 billion. Its net income grew 15.5% from the year-ago quarter to $374.61 million. Its earnings per share increased 15.7% from the prior-year quarter to $3.61.

CTAS’s revenue and EPS are expected to increase 9.1% and 14.1% year-over-year to $2.39 billion and $3.58 for the fiscal third quarter (ending February 2024). The company surpassed the revenue and EPS estimates in each of the trailing four quarters, which is impressive.

CTAS gained 29.4% over the past nine months to close its last trading session at $584.51.

CTAS’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

CTAS has an A grade for Quality and Stability and a B in Sentiment. It is ranked #14 out of 43 stocks in the B-rated Outsourcing - Business Services industry.

For additional CTAS’s Momentum, Quality, Growth, and Value ratings, click here.

Pearson plc (PSO)

Based in London, the United Kingdom, PSO is a global education company with segments covering assessments, virtual learning, English language learning, higher education, and workforce skills, providing educational solutions internationally.

On December 14, PSO announced its plan to expand its generative AI to millions of U.S. college students in key subjects following positive fall semester feedback. The AI study tools, integrated into academic content, aim to enhance learning experiences and will include more titles by Fall 2024, reflecting PSO’s commitment to responsibly applying AI in education.

PSO’s trailing-12-month gross profit margin of 48.04% is 35.8% higher than the industry average of 35.38%. Its 11.98% trailing-12-month EBIT margin is 57.6% higher than the 7.60% industry average.

For the six months ended June 30, 2023, PSO reported sales and gross profit of £1.88 billion ($2.38 billion) and £919 million ($1.16 billion), up 5.1% and 11.4% from the previous-year quarter, respectively. The company’s adjusted operating profit and EPS grew 56.3% and 13.8% year-over-year to £250 million ($316.39 million) and £25.5, respectively.

PSO’s shares have increased 18.3% over the past six months to close the last trading session at $12.37.

PSO’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

It has an A grade for Sentiment and Growth and a B in Stability. Within the A-rated Outsourcing - Education Services industry, it is ranked #9 out of 20 stocks.

To see PSO’s additional POWR Ratings for Momentum, Value, and Quality, click here.

GEE Group Inc. (JOB)

JOB provides permanent and temporary professional and industrial staffing and placement services in the United States. The company operates through two segments, Industrial Staffing Services and Professional Staffing Services.

In terms of the trailing-12-month gross profit margin, JOB’s 34.68% is 14.6% higher than the 30.28% industry average. Likewise, its 6.18% trailing-12-month net income margin is 1.5% higher than the 6.09% industry average.

JOB’s net revenues for the fiscal fourth quarter ended September 30, 2023, came in at $34.27 million. Its non-GAAP EBITDA increased 23.3% year-over-year to $1.20 million. Its non-GAAP net income came in at $1.13 million compared to loss of $433 million in the previous-year quarter.

Street expects JOB’s EPS and revenue to amount to $0.01 and $36.17 million in the fiscal first quarter ended December 2023.

The stock has gained 14.7% over the past nine months to close the last trading session at $0.47.

JOB’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.

In addition, it has an A grade for Value and a B for Stability. It is ranked #6 out of 19 stocks in the A-rated Outsourcing - Staffing Services industry.

To see the other ratings of JOB for Growth, Sentiment, Quality, and Momentum, click here.

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CTAS shares were trading at $583.72 per share on Wednesday afternoon, down $0.79 (-0.14%). Year-to-date, CTAS has declined -3.14%, versus a 0.01% rise in the benchmark S&P 500 index during the same period.

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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