Although the S&P 500 is down 2.4% over the past six months, Accenture’s stock price has fallen further to $315.89, losing shareholders 12.9% of their capital. This might have investors contemplating their next move.
Is there a buying opportunity in Accenture, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Accenture Not Exciting?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons why ACN doesn't excite us and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within business services, a stretched historical view may miss new innovations or demand cycles. Accenture’s recent performance shows its demand has slowed as its annualized revenue growth of 3.1% over the last two years was below its five-year trend. 
2. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Accenture’s margin dropped by 5.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Accenture’s free cash flow margin for the trailing 12 months was 13.6%.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Accenture’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Accenture isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 24.3× forward P/E (or $315.89 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at the most dominant software business in the world.
Stocks We Like More Than Accenture
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