Private Assets Are Coming to Your Portfolio…Be Ready

Motley Fool Hidden Gems Investing

The episode opens with a debate over Accenture's earnings surprise, where the hosts argue that the stock's rally reflects relief rather than a transformational growth story. They then shift to new SEC rule changes that

Key takeaways

• Accenture shares rose about 19% after revenue and earnings beat expectations, but John Quast cautioned that local-currency revenue grew only 5% in fiscal 2026 and guidance for fiscal 2027 is just 3%-6% growth.
• Lou Whiteman framed the Accenture rally as a valuation repair story, noting the stock traded below 10 times expected earnings before the report and was still around 14 times earnings afterward.

Main topics

• Accenture earnings and AI risk
• SEC rules on private assets

Notable quotes

what went right was Accenture didn't die.

Conclusion

The episode is useful for investors trying to interpret Accenture's recent rally and understand how new

Transcript preview

Speaker 5 (0:01) The SEC says private assets are all right. Motley Fool Hidden Gems Investing starts now. Speaker 5 (0:09) Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime Fool contributors, John Quast and Lou Whiteman. Guys, we're going to get into what has been a large theme so far in 2026, and that is bringing private assets, private capital, private equity to the masses, to the retail investors, to the people like us. We're also going to jump into the mailbag, but we have to start today with kind of the earning surprise numbers of the day, and that's Accenture. Shares are up about 19 % as we're taping on better than expected earnings. Revenue and earnings both beat expectations and their fiscal guidance, because this was the end of their fiscal 2026 year. They said fiscal 2027 came in also slightly higher than Wall Street expectations. So this has been a company that's been on a slow glide path down recently. And so the question to me is, what went right? for a company that has been rather short on good news over the past couple of years. Speaker 4 (1:10) I'm sorry to be that guy, Tyler, but what went right was Accenture didn't die. It kind of reminds me of this scene from the Monty Python movie years ago where they're saying, bring out your dead, and they throw the guy on the wheelbarrow, and he says, I'm not dead yet. This is kind of what that is. Accenture is not dead yet, but... I wouldn't say that business is necessarily booming. So you look at its fiscal 2026, which is what it just completed. Revenue in local currency, which I think that's a good metric since it is an international business, measuring that in the local currency, revenue only up 5 % year over year. That's not exactly thriving. It's okay, but it's not anything that you're going to write home about. You look ahead to fiscal 2027. Management only expects 3 % to 6 % growth. So it could even decelerate further into the coming year. So this isn't necessarily a great victory for Accenture, but it is still alive. Speaker 6 (2:09) Right. And you know what? Maybe that's enough because, you know, valuation matters here. And going into earnings, the stock had dipped below 10 times expected earnings. Just two years ago, they were up in the 30s. So this was I mean, yeah, John, I don't think you're being that guy. I think, you know, sometimes just announcing that, hey, the sky actually isn't falling. That is enough, at least in the near term. I think John summed it up well. They beat expectations. Expectations were dismal. If you look at what expectation, you know, like the way they've guided down. But look, three months ago, there was a debate about whether or not Accenture can survive. So, you know, these results help answer those questions. I don't know if it's a massive growth stock from here, but if it isn't going to zero, if there are signs that just, you know, it's not going, then there is a reason to bounce off of a single digit multiple, I think. And that's what we're seeing. Look, guys, if they're not going away. It's still only 14 times earnings today, which is, you know, kind of still kind of cheap. But yeah, that's, I think, the harder question from here. Speaker 4 (3:15) Well, I think there are a couple other things that signal that maybe it is a little bit stronger than what investors were giving it credit for. You look at the operating margin, look at the non-gap, because that does exclude some one-offs that were more favorable compared to last year. The operating margin did go up slightly year over year. So 15.8%. operating margin. That's a very respectable margin and slightly better than last year. So that is good. You also look at the cash that it's returning to shareholders, basically returning all of the cash, free cash flow to shareholders over the past year in the form of share repurchases and dividends. I suppose you could be glass half empty kind of a guy and say management is out of ideas and trying to solidify its shareholder base, but glass half full. It really does see its stock as an attractive value and it's putting its money where its mouth is by deploying that free cash flow into share repurchases. Speaker 6 (4:12) And Accenture has always been a cash return story. It has been for a long time. I'd be more nervous about that if this was a new change that that might say they've run out of ideas. But yeah, this is kind of what they do. Speaker 5 (4:23) Yeah, I was going to say when you're a consulting company and all your assets are people and your capital expenditures are on chairs and office equipment, it's not like you have. You don't have to spend much to keep the lights on with a business like this. Now, this is the section we kind of want to eat crow. We're going to go behind the curtain a little bit with some of our Motley Fool services, both on the hidden gems in the Rule Breakers teams. Past couple of months, we've either sold Accenture in real money portfolios or even put it on hold in some of our recommendation services. I'm wondering, after seeing these results, if it's time to eat crow. I struggle whether... this report was a trend or an aberration. To your point, 5 % revenue growth is not much, but you compound that with good buybacks at a reasonable valuation, you can get to 7 % to 10 % earnings per share growth. And at the valuation that you have, that's not the most unattractive proposition when you think about it in the grand scheme of things. Speaker 4 (5:25) Well, let's be careful not to read too much into the market's reaction from a single quarter. We could take a little stroll down memory lane to May of 2025, when the Trade Desk stock was up about 20 % to about $70 per share. And one headline from that day read, Trade Desk's Kokai platform fuels stunning rebound. We're down roughly 80 % since then. A market reaction in a single day to a single quarter doesn't necessarily mean that everything is all clear. There are still some questions. I mean, AI is changing so many things out there. And I'd say that Accenture's business is still, there are still some questions that remain unanswered. I will say this, one thing that was extremely encouraging to me and that I would be very encouraged with if I were a shareholder of Accenture. Accenture says that 65 % of new bookings came from outcome-based fixed price projects. Now, that is a very big thing. You look at the workloads that AI is replacing. They don't have fixed costs. I'll tell you that right now. It can be outcome-based, but oftentimes AI gets stuck in these loops and it burns tokens needlessly. And it is really hard if you're trying to model what your expenses are going to be. To get the outcome you want for the price that you're paying, you don't know with