Shareholders of Accenture would probably like to forget the past six months even happened. The stock dropped 27.2% and now trades at $253.37. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Accenture, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Accenture Not Exciting?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons there are better opportunities than ACN and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within business services, a stretched historical view may miss recent innovations or disruptive industry trends. Accenture’s recent performance shows its demand has slowed as its annualized revenue growth of 3.8% over the last two years was below its five-year trend. 
2. Free Cash Flow Margin Dropping
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 dropped by 4.1 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 15%.
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. Over the last few years, Accenture’s ROIC has unfortunately decreased significantly. 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 bar. Following the recent decline, the stock trades at 19× forward P/E (or $253.37 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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