No one likes getting bossed around -- especially bosses. But when it comes to consulting company Accenture (NYSE:ACN), this corporation has proven time and time again that its value-add is as real as it gets. Accenture might be down 12% after a tepid earnings release on Thursday. However, there’s more to the long-term story for investors willing to give the company a little patience. Let's take a look at Accenture's business model, its current growth story, and one secret sign that suggests Accenture stock could soar in the years to come.
The business model
Accenture stock is a mystery to most investors. With no real physical capital, stock pickers have a hard time pointing to a factory or plastic-wrapped product that represents their piece of Accenture stock pie. That's because Accenture, like many consulting companies, is all about people -- 257,000 people, to be exact.
With human capital as its largest collateral, Accenture manages a 20.8% return on assets and 61.9% return on equity. That translates to a 30.6% gross margin and an 11.4% net profit margin. These numbers may look good, but its competitors stack up even bigger numbers.
Accenture is the No. 2 IT consulting company, but IBM (NYSE:IBM) still takes the cake. The corporation enjoys a 14.3% return on assets, but pushes that into 83.3% return on equity. Its gross margins sits almost 20 percentage points higher at 48.3% and net profit margin clocks in at 16%. With 434,000 employees and nearly four times Accenture's assets, IBM has scale that even Accenture can't touch.
Accenture is largely a technology consulting company, and other companies are beating it by finding their niche and owning it. Though Accenture boasts 70,000 India-based employees, Infosys (NYSE:INFY) has carved out its tech kingdom with 156,000 employees and 800% sales growth over the past 10 years. The story here is similar to IBM's. With 24.8% return on equity and 23.3% net profit margins, it seems that Accenture is getting the middle man squeeze. But despite tighter numbers, Accenture stock's growth days are looking healthier.
The company's "High Performance. Delivered" slogan lends itself more to processing than pacemakers, but the Accenture's health and public services segment has been taking off. The division is the smallest slice of Accenture's overall sales, but its 12% revenue growth beats out other segments by 5 percentage points or more.
IBM has allocated around 8,000 staff to its own health care division, and smaller competitor Cognizant counted on health care for just over 25% of 2012 sales. Just like Accenture, Cognizant focuses on both IT and outsourcing solutions, a lucrative combination for any cash-strapped corporate client.
Developers, developers, developers
But there's one major area where analysts haven't given Accenture proper credit. This year, little-known Accenture Development Partnerships celebrated its 10th year of existence. ADP heads where other consulting companies don't dare go: the land of no profits.
For international development clients, public or private, ADP offers Accenture's services on a not-for-profit basis. The company zeroes out margins and overhead, and its best-performing employees take a salary cut to join ADP's ranks. Working with biggest multilateral and corporate clients around, ADP travels the globe working on issues as varied as organizational governance to "last mile" mobile supply chain solutions.
Zero profits might seem like a stupid idea, but they're a secret recipe to success for Accenture stock. As ADP Executive Director Gib Bulloch points out, "What was previously perhaps social issues or charity issues for business are now very much strategic issues for business. Businesses are increasingly looking at emerging markets as new sources of growth."
It's a fine line to follow, but Bulloch hopes that a balance can be struck between the public sector, private sector, and people themselves to enable a more effective development process for everyone involved. In a collaborative study with the United Nations, Accenture found that "more than 766 global business leaders across 25 industries and 100 countries believe aligning business strategies, operations and supply chains with sustainable development outcomes was not only desirable from a societal perspective, but also increasingly a business imperative."
Can Accenture stock accelerate?
Emerging markets will make or break most multinationals currently at the top of their game. But Accenture offers the unique opportunity to benefit from sharing best practices across the globe, no matter who ends up ahead. Its no-headquarters model makes it a truly global corporation, seeking out improvement opportunities too cheap or too broad for its competitors. With an envious business model to boot, Accenture stock still has room to grow.
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