If you have been keeping an eye on the stock market recently, you may have noticed two different realities. For global stocks in general, the past year has been the best of times as investor fervor around artificial intelligence and strong corporate earnings pushed the stock market to record levels. But for companies in the workforce solutions ecosystem, it was the worst of times as their stocks languished, seemingly failing to capitalize on trends that have elevated other sectors.

This stark difference became apparent when SIA recently launched its Workforce Solutions Ecosystem Valuation Comparison Database, an interactive tool that tracks stock prices and valuation metrics of more than 180 publicly traded companies within the workforce solutions ecosystem. With interactive charts and data that is updated daily, this tool gives users a clear view of the industry’s financial health.

This tool has revealed some powerful insights so far.

The first trend to emerge is the underperformance of workforce solutions. As of Feb. 6, stock prices of workforce solutions firms are down 10% year over year at the median, while the MSCI World Index, which captures large and mid-cap companies across 23 developed countries, has gained 19%. One explanation for this stark divergence is the slowdown in hiring, particularly in key industries such as IT and manufacturing. The slowdown has primarily stemmed from a normalization back to pre-pandemic labor demand levels, labor hoarding and economic factors such as elevated interest rates.

It’s important to note, however, that not all areas of workforce solutions have endured the same market downturn. Some bright spots include background verification, up an average of 41% year over year, and payrolling/compliance, which is up 22% (See Figure 1). These categories have healthy outlooks, as demand for these services is projected to grow at the same time as new technology is driving additional efficiencies. Sterling Check, for example, has implemented AI to automate large parts of the background process. And Paychex, a payrolling/compliance vendor, has cited increasingly complex regulations and evolving workforce dynamics as drivers in growing demand for its services.

Stock Performance in Select Industry Sectors

Figure 1. Average year-over-year change in stock price by primary sector as of Feb. 6.

Other areas that have experienced growth include technology companies. Valuations for background verification and payrolling/compliance companies as well as online job advertising and HR tech companies have expanded over the past year. Meanwhile, service-oriented categories such as staffing and business process outsourcing have fallen behind, and their valuations have slipped accordingly. As the rise of AI drives investor interest, technology companies are in a far better position to reap the rewards it can provide, while service-oriented sectors may face greater competition from new AI solutions or be displaced altogether.

To further assess how technology-enabled solutions command a premium from investors, we can look at the price-to-revenue ratio, which quantifies how much investors are willing to pay for each dollar of a company’s sales. As shown in Figure 2, tech-heavy workforce solutions sectors receive the highest multiples, led by HR tech, while staffing and BPO fall on the other side of the spectrum.

Price-to-Revenue Ratio by Industry Sector

Figure 2. Median price-to-revenue ratio by primary workforce solutions sector as of Feb. 6.

As such, while the median staffing firm generates slightly more revenue ($375 million) than the average online job advertising firm ($310 million), the median market cap of online job advertising firms ($622 million) is more than three times greater than that of staffing firms ($180 million). The discrepancy can be attributed to investors expecting stronger growth potential in tech companies, higher gross margins and greater competitive moats generated by network effects and economies of scale.

Of course, there are other factors besides a technology-driven business model that affect a company’s valuation. SIA’s Valuation Database reveals that geography also plays a role. As of Feb. 5, companies headquartered in EMEA have experienced a median 17% decline in share price year over year, while those based in APAC have seen their share prices fall 10% over the same period. Impressively, firms based in the Americas have enjoyed a median share price growth of 4% year over year, suggesting investors continue to see greater potential in firms serving the massive US market. This trend is reflected in the multiples companies receive in each region.

Price-to-EBITDA Ratio by Region

Figure 3. Price-to-EBITDA ratio by staffing firm headquarters location as of Feb 6.

As is evident in Figure 3, the price-to-EBITDA ratio varies by a firm’s headquarter location. In accordance with the trend in stock prices, firms based in EMEA receive the lowest premium on their EBITDA at only 6.5 times at the median, less than two-thirds (61%) of what firms in the Americas receive. Aside from a larger addressable market, firms in the US can take advantage of more flexible regulatory environments, enabling them to cut labor costs faster during a downturn, bear lower corporate tax burdens and launch new products more quickly than their European counterparts. One recent piece of legislation that may impact stock prices is the European Union’s AI Act, which imposes strict obligations on providers and users of high-risk AI systems, including those used in recruitment and HR. These stringent regulations have raised concerns about higher compliance costs and suppressed innovation and competitiveness.

So, while the workforce solutions ecosystem may be in the midst of a slump, look deeper and you will find and a tale of two markets: one propelled by prospects of extraordinary growth and another in danger of being left behind. Fortunately, the future isn’t all doom and gloom. A rebound in valuations could be sparked by technology that improves profit margins and new revenue streams as flexible work models gain traction.

SIA members can access the Workforce Solutions Ecosystem Valuation Comparison Database to get real-time insights into the market and uncover trends within the evolving workforce solutions landscape.