Business services providers play a critical role for enterprises, assisting them with everything from new hardware integrations to consulting and marketing. Still, investors are uneasy as firms face challenges from AI-driven disruptors and tightening corporate budgets. These doubts have caused the industry to lag recently as services stocks have collectively shed 5.2% over the past six months. This drawdown was worse than the S&P 500’s 2.1% decline.

A cautious approach is imperative when dabbling in these companies as many are also sensitive to the ebbs and flows of the broader economy. With that said, here are three services stocks best left ignored.

MSA Safety (MSA)

Market Cap: $6.43 billion

Founded in 1914 as Mine Safety Appliances to protect coal miners from dangerous gases, MSA Safety (NYSE: MSA) designs and manufactures advanced safety products that protect workers and facilities across industries including fire service, energy, construction, and manufacturing.

Why Do We Think Twice About MSA?

1. Sales trends were unexciting over the last two years as its 2.4% annual growth was below the typical business services company
2. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 6.2% annually

MSA Safety is trading at $165.77 per share, or 19x forward P/E. Read our free research report to see why you should think twice about including MSA in your portfolio.

Iridium (IRDM)

Market Cap: $3.53 billion

With a constellation of 66 low-earth orbit satellites providing coverage to every inch of the planet, Iridium Communications (NASDAQ: IRDM) operates a global satellite network that provides voice and data services to customers in remote areas where traditional telecommunications are unavailable.

Why Are We Cautious About IRDM?

1. Muted 5% annual revenue growth over the last two years shows its demand lagged behind its business services peers
2. Estimated sales growth of 1.7% for the next 12 months implies demand will slow from its two-year trend
3. 7.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $34.68 per share, Iridium trades at 27.7x forward P/E. To fully understand why you should be careful with IRDM, check out our full research report (it’s free).

CoStar (CSGP)

Market Cap: $16.57 billion

With a research department that makes over 10,000 property updates daily to its 35-year-old database, CoStar Group (NASDAQ: CSGP) provides comprehensive real estate data, analytics, and online marketplaces for commercial and residential properties in the U.S. and U.K.

Why Does CSGP Give Us Pause?

1. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.7% annually
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 13.2 percentage points
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

CoStar’s stock price of $40.20 implies a valuation ratio of 31.6x forward P/E. Check out our free in-depth research report to learn more about why CSGP doesn’t pass our bar.

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