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What does Accenture do is a fair question. There are a number of consulting and professional services firms that appear to simply compete directly with one another for the same customers. Similar to other such firms, it provides strategy and consulting services but largely with a particular focus on information technology (IT).
Accenture offers a range of specialized services related to technology and technological services. There are a number of emerging Tech companies with complex business models. If you don't understand cloud computing, AI, quantum computing, or other aspects of software applications, don't worry. Accenture has these areas covered. Accenture has a solid niche in Tech and an expertise that outclasses its main competitors. And with technology and technological services becoming increasingly complex, the demand for Accenture's services rests on a vast business landscape. With the stock currently down - 17% for the past year, now is a potentially opportune time to buy into Accenture's stock as a money investment.
What does Accenture do? With a long operating history stemming from 1951, it presents itself as well-established. It has a market cap of $180B, and over the past 10 years, Accenture has experience solid growth.
Revenue has achieved a compounded annual growth rate of 8.34% during that time. In the last 5 years alone, revenue has jumped from $35B in 2017 to $62B in 2022, nearly doubling. Net income and Free Cash Flow have both compounded at more than 10% growth over the last 10 years. Again, with the Tech business landscape continuing to grow with increasing complexity, there's opportunity for Accenture to continue achieving steady levels of growth. This will occur even during Tech downturns, since Accenture also specializes in restructuring and troubleshooting.
Investment Analysis: Profitability Ratios
In the past year, Accenture traded at as much as $415 per share. The current trading level is $269 per share with a P/E ratio of 23. While the stock is still not relatively cheap per se, the fact that it's down -17% in the past year is potentially an attractive buying opportunity. Of course, establishing an adequate Margin of Safety when investing money is critical to investment returns.
In the past 5 years, Accenture has averaged a high return on equity of 35.1%. Management has been making efficient use of company assets, as return on assets has averaged a high 13.4% over the same period. And return on invested capital has averaged an excellent 38.9%. A lot of this is driven by the company's profitability, with earnings having increased 169% over the past 5 years. Operating margins have also improved nearly 3% as well, resulting in an operating increase of about $3.5B.
Accenture's gross profit margin has persisted at levels below the sector median. The largest cost for its services are its labor. What does Accenture do? The company pays its personnel at a premium for their expertise, and the company also invests in Accenture employees' growth and development. To maintain as a premier consulting practice, higher labor costs have had an impact on gross margin. But while compensation costs have increased, non-payroll costs have actually declined. Sales and marketing costs have increased 7% versus the prior year, and general & administrative costs have increased a little nominally, but they've actually decreased as a % of revenue.
I concur with the Motley Fool in assessing Accenture's competitive advantage with a quick & dirty Warren Buffet test. It has high returns on equity (ROE) and very low levels of debt. Return on equity is averaging 35.1% annually, and the balance sheet reflects $3.3B in total debt versus $5.9B in cash. The debt-to-equity ratio stands at a very low 13.9%, and debt-to-free cash flow is 2.99, below all of its closest competitors. Looking at Gartner (NYSE: IT), it has experienced similar levels of revenue growth and strong levels of earnings and free cash flow growth. However, while Gartner has a market cap of only $27B but also holds a whopping $2.64B in total debt and only $0.5B in cash. So with respect to Accenture, the quick & dirty test of high ROE and low debt is indeed well reflected.
Large levels of cash on Accenture's balance sheet also reflect its competitive advantage. The levered FCF (free cash flow) margin is 12.56%, well-above the sector median of 7.53%. Accenture is also using that cash as part of an enduring share repurchase program. It recently bought back shares for $1.4billion. The firm has an authorized total remaining of share repurchases estimated to be $4.9 billion. Again, this compares to Accenture's ~$170B market cap. Shareholders also reap a 1.59% dividend yield by owning the stock.
What does Accenture do? While the stock is currently down, the fundamentals remain strong and growth prospects appear favorable. Consistently strong financial results, even recently as well, reflect the resilience and scale of the business. Revenues, operating income, and earnings have all increased despite a challenging economic environment. Its risk is low for a company operating specifically in Tech. This is due to a sticky clientele and high barriers to entry.
While Accenture stock may be still valued at a premium compared to the sector median, I believe the expected growth and the ongoing initiative to return cash to shareholders justifies this premium. This is especially the case when viewed with a long-term investment strategy. There's room for growth with the dividend payout, and share repurchases already have a solid history with a likelihood to continue. So it's possibly a great option to make money by investing.
What does Accenture do? It is effectively navigating and supporting the Tech industry while also providing solid shareholder value. According to Accenture investor relations, the guidance for next year and the years to come in the short-term look very promising. The IT Services market is also expected to increase by 7.1% CAGR until 2027. It may not be necessarily undervalued, but investment analysis suggests its current price is at a decent level to justify as a money investment due to its long-term growth prospects and shareholder value.
The information provided on this site is based on my own personal experience, research, and analysis, and it is not to be construed as professional advice. Please conduct your own research before making any investment decisions. I am not a professional financial advisor, stockbroker, or planner, nor am I a CPA or a CFP. The contents of this site and the resources provided are for informational and entertainment purposes only and do not constitute financial, accounting, or legal advice. The author is not liable for any losses or damages related to actions or failure to act related to the content on this website.