Accenture (ACN): Buy, Sell, or Hold Post Q1 Earnings?

Accenture’s stock price has taken a beating over the past six months, shedding 29.8% of its value and falling to $168.41 per share. This may have investors wondering how to approach the situation.

Following the pullback, is this a buying opportunity for ACN? Find out in our full research report, it’s free.

Why Are We Positive On Accenture?

With a workforce of approximately 774,000 people serving clients in more than 120 countries, Accenture (NYSE:ACN) is a professional services firm that helps organizations transform their businesses through consulting, technology, operations, and digital services.

1. Skyrocketing Revenue Shows Strong Momentum

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Accenture’s sales grew at an impressive 9.6% compounded annual growth rate over the last five years. Its growth surpassed the average business services company and shows its offerings resonate with customers.

2. Economies of Scale Give It Negotiating Leverage with Suppliers

With $72.11 billion in revenue over the past 12 months, Accenture is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices.

3. Increasing Free Cash Flow Margin Juices Financials

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Accenture’s margin expanded by 5.4 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat. Accenture’s free cash flow margin for the trailing 12 months was 17.3%.

Final Judgment

These are just a few reasons why we think Accenture is a great business. After the recent drawdown, the stock trades at 11.5× forward P/E (or $168.41 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.

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