House of the Mouse Outsources IT

Disney (NYSE:DIS) is an entertainment company -- that's what it does, and it does it well. Affiliated Computer Services (NYSE:ACS) provides outsourced IT solutions -- that's what it does, and it does it well.

So in a monkey-touches-monolith moment, the two companies have gotten together on a seven-year, $610 million contract. Affiliated Computer Services, or ACS, will provide your basic IT infrastructure services -- including services such as desktop and help-desk support, antivirus and intrusion detection, and messaging and procurement services.

This announcement isn't exactly a surprise, though. Disney had said back in May that it was looking to cut about 3,000 IT jobs, transferring the work to outside companies.

If you're looking for a really favorable write-up on the investment prospects of ACS, you'd better stop reading now. Although there are a lot of compelling positives to the ACS story, I just can't bring myself to recommend it very enthusiastically.

Yep, the price-to-earnings ratio is less than 17 and the trailing enterprise value-to-free cash flow number is under 15. You even have a double-digit return on equity and a return on assets and a net margin that are both near double digits.

And yet, I've managed to buy the stock at similar valuations twice in the past only to sell out at a small loss as the stock triggered my trailing stop-losses. For now at least, growth seems to have stalled out a bit, and many investors seem concerned about the company's various state and federal government contracts.

ACS should still be at the dead center of a great industry -- IT is becoming ever more complex, hard to manage, and expensive. That should be golden news for the likes of ACS. Of course, that's also good news for the likes of Computer Sciences (NYSE:CSC), Electronic Data Systems (NYSE:EDS), and IBM (NYSE:IBM), and that could well be part of ACS's problem.

For investors who don't have the same sour taste in their mouths as I do, ACS is probably a good stock for the watch list. It appears to be high-quality by all of the standard numerical tricks, and this slowdown in growth could be just a short-term pause. So that could spell opportunity for the right investor.

For me, though, it'll be a case of "fool me once, shame on you; fool me twice, shame on me."

For more information on the IT space:

• Niku's Neat Deal
• Can Novell Save Itself?
• Is IBM a Rule Breaker?
• Is EDS A-OK?

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).