Over the past six months, Korn Ferry has been a great trade, beating the S&P 500 by 7.2%. Its stock price has climbed to $78.87, representing a healthy 18.6% increase. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Following the strength, is KFY a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does Korn Ferry Spark Debate?
With clients including 97% of the S&P 100 and operations in 103 offices across 51 countries, Korn Ferry (NYSE: KFY) is a global consulting firm that helps organizations design optimal structures, recruit talent, develop leaders, and create effective compensation strategies.
Two Things to Like:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Korn Ferry’s 10.1% annualized revenue growth over the last five years was impressive. Its growth beat the average business services company and shows its offerings resonate with customers.
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Korn Ferry’s EPS grew at 19.8% compounded annual growth rate over the last five years, higher than its 10.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to Be Careful:
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).
Unfortunately, Korn Ferry’s ROIC has decreased over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.
Final Judgment
Korn Ferry’s positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at 13× forward P/E (or $78.87 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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