Accenture (NYSE:ACN) is one of the world’s most successful professional services companies that’s heavily focused on digital transformations. But over the past three years, the shares haven’t performed that well on the stock market.
However, I think this has opened up a potential value opportunity that might be worth me capitalising on.
Analysts forecast the growth will resume
Wall Street analysts are saying that the company’s full-year earnings growth could increase from 2.5% year on year for the period ending August 2024 to 11% in August 2026.
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Investors don’t seem to have priced the future growth that could occur into the share price yet. And while the company is already very well established, there’s an opportunity for it to deliver further future expansion through international operations. In particular, I think India is going to be a lucrative territory. Some reports say that its GDP growth annually is roughly 7% higher than in the US right now.
However, there are very big professional services companies headquartered in India that already serve clients all over the world. The competition here is likely to intensify as the growth opportunities in the country become more widely recognised.
The valuation is appealing
The company’s price-to-earnings (P/E) ratio, a crucial measure of the company’s valuation, is currently around 24. That’s when taking into account Wall Street’s estimates for the business’s earnings over the next year.
This is good news because, over the past 10 years, its median P/E ratio has been 25.5. In fact, in 2021, it even got as high as 37.
I’ve highlighted the P/E ratio against varying points in time to show that the market is likely slightly undervaluing the shares at the moment. This is crucial because a large part of success when investing is down to buying at a fair price.
As I mentioned, in the near term, analysts expect Accenture’s earnings growth to be good. Therefore, I consider the current cheap price an opportunity to potentially get great growth over the next three years at least.
Are there better tech investments?
Accenture is a very strong company. Its 10-year gain in share price of around 275% proves that to be so in many respects. However, compared to other leading technology companies, that growth isn’t as high as one might be looking for.
In addition, with the rise of artificial intelligence (AI), management needs to be evermore careful in how it navigates its innovation strategy. There’s a long-term risk that artificial superintelligences will replace many professional and consultation services over time.
In my opinion, firms like Microsoft, Alphabet, and Amazon are much more likely to maintain a business moat during this time of radical change when AI and automation are on the rise.
Very good, though not the best
Personally, I’m holding off on investing in Accenture for now. Instead, I’ll invest in some local Indian professional services firms. Alternatively, I might double down on my position in Alphabet.
I’ve been using Google’s Gemini AI model more recently, and I think its long-term future is going to be astounding. I also believe Alphabet shares are undervalued at the moment, so that opportunity looks more lucrative to me than Accenture. After all, it’s the companies building the infrastructure for AI that are going to make more money than those implementing it.
