About Accenture

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Accenture is a staple in the consulting industry. 

Well, what does that even mean? I mean, people in the business world throw the term “consulting” around so often it has more than likely lost some of its meaning or backbone over time.

Let’s clear it up before getting more familiar with one of the world’s best known consulting firms.

From our viewpoint, consulting can be seen as a service offered by a firm or an individual to help guide, help or strengthen the organization or business entity with which it is hired. As a random, fictitious example, let’s suppose AutoZone is humming along and reporting fair growth and acceptable quarterly numbers to the analysts on Wall Street. However, upon some further discussion and review between members of AutoZone’s executive team, they realize that they are missing out on a key customer demographic and they themselves don’t know how to appeal to said demographic and conclude that they are leaving revenue on the table if they don’t directly address this concern.

In this scenario, AutoZone might look to hire a company such as Accenture to help give the company’s executive team and/or its relevant departments a fresh perspective and lens of their new target demographic and more importantly how to pursue and win them over and ultimately take business away from its competitors in the long run.

Consultants quite literally make their money by consulting others. 

Interestingly, there are more than enough different scenarios and businesses that Accenture has worked with currently and in the past (including most of the Fortune 500) and as long as executives at other companies and organizations themselves need to stay relevant, we think Accenture will always have an intact business model.

Accenture has worked with companies like Microsoft, Dell, Adobe, Siemens and many, many other major businesses and brands that you are likely very familiar with.

Typically, consultants either get paid by the hour or per project or milestone (whatever is mutually agreed upon between Accenture and its clients) and we’ve gathered that Accenture engages in both of these payment structures, according to what the scenario calls for, as each one can be markedly different from the next.

One of the interesting things we’d like to add about this company is that we view its business model as being fairly recession resistant as its clients across the globe, especially now more than ever are arguably facing what seem to be insurmountable amounts of change, particularly as it relates to technology, and instead of trudging through these issues in-house, it probably makes more logistical and economic sense to tap a firm like Accenture to come in and offer a new perspective as well as proven solutions to help their clients better prepare for the now and the future.

As long as there are businesses, there will be internal problems and external variables that must be addressed and fixed, and therefore business to be had by Accenture.

All in all, Accenture is a top-tier consulting firm.

Let’s walk through this company’s core financials and try to ultimately gather whether or not this company’s stock is worth buying and keeping in your portfolio for years if not decades to come.

Accenture’s stock financials 

Presently trading at a share price of approximately $277, Accenture has a market capitalization of $182.4 billion, a price-to-earnings (P/E) ratio of 25.87 and distributes an annual dividend of $4.48 to its shareholders, which is currently yielding 1.57%.

Given these initial metrics, Accenture’s stock is off to a decent start as it can be seen that it pays a pretty hefty annual dividend to its shareholder base and also, despite all of its recent success, isn’t trading at a massive premium, at least according to its price-to-earnings ratio, at it currently indicates that the stock is trading slightly above fair value, given that a P/E of 20 is generally accepted to imply fair value and anything higher implies its overvalued, but in this case it’s just a matter of exactly how overvalued the stock is, and thankfully, it’s not awfully expensive relative to its intrinsic worth.

Moving onto Accenture’s balance sheet, the company’s executive team is in charge of around $47.2 billion in total assets along with nearly $25.2 billion in total liabilities. 

This is an ideal balance sheet to maintain in order to both be able to take on more than enough in terms of the company’s total liabilities while also having enough debt to continue sufficiently financing current and future growth.

We don’t really feel the need to elaborate much more on the company’s current capital structure and balance sheet overall because we simply don’t have much (if anything) negative to say about the company in this regard.

As it relates to the company’s income statement, Accenture’s total revenue has seen positive growth over the last five years, starting at just under $41 billion in 2018 and rising each subsequent year to its latest reported figure of approximately $61.6 billion (8/31/2022).

This recent positive growth trend in total revenue speaks to the company being able to successfully retain and acquire clients as well as properly address the multitude of issues that its business and organizational clients are facing. Thus, we don’t see much of a reason for the company’s total revenue to decline anytime soon, as only more and more problems facing the business world will need to be addressed and outsourced to solution finders like Accenture.

On the basis of the cash flow statement, the company’s net income has been growing and positive during the same five-year time frame as well as its total cash from operations as well.

This shouldn’t be overlooked as even for a company with a recession resistant business model like Accenture’s, the last handful of years have been challenging in many regards, however, the company has still been able to generate growing, positive cash flow and total cash from its operations. 

This certainly speaks to Accenture being a recession resistant company with a lot of value levers to pull.

Accenture’s stock fundamentals

Ok, we were a bit shocked by this next metric, as it was frankly completely unexpected for a company with the size, stature and clout of that of Accenture, and not in a good way.

Namely, we initially expected that this company’s trailing twelve month (TTM) net profit margin would have been either in-line with the industry’s average or mildly higher than that of the industry. However, according to TD Ameritrade’s platform Accenture’s TTM net profit margin currently sits at 11.49% to the industry’s average of 24.43%, which is a material difference and thus a bit concerning.

For a company that has around 5% market share, we would’ve hoped that Accenture’s current annual net profit margin would’ve been substantially more competitive than it actually is today.

Irrespective of reason, we can’t immediately devise any plausible nor acceptable conclusion(s) as to why a company as established and large as Accenture is lagging so far behind the industry’s average in terms of net profitability.

It makes us unhappy, unconfident and confused, which are three emotions we despise feeling when analyzing potential investment opportunities.

Nevertheless, the company’s TTM returns on assets and investment are both slightly higher than that of the industry’s average, which assuredly is a plus but in the grand scheme of things, what matters to us a little more is (net) profitability.

Should you buy Accenture stock?

This is your classic “hold if you already own stock in the company” situation, from our perspective. 

Although the stock has performed quite well over the last handful of years and the company’s business model, at least at face value, is strong and easy to understand, the company’s stock price is valued a bit high relative to its intrinsic value at the moment and its comparably low trailing twelve month net profit margin relative to the industry and the averages of its peers is far from confidence invoking.

Of course, as valuations fall with the economy overall during the worst that is to come in the current recession, we’ll keep our eyes on the company and its stock, as it has reportedly been making some substantial moves in and around the Cloud, which we view as a prudent and forward-thinking move on Accenture’s part.

All in all, however, incorporating all of this data and information, we view it as a best fit to give Accenture’s stock a “hold” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.