Korn Ferry trades at $74.80 per share and has stayed right on track with the overall market, gaining 11.4% over the last six months. At the same time, the S&P 500 has returned 7.6%.

Is there a buying opportunity in Korn Ferry, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Korn Ferry Will Underperform?

We're sitting this one out for now. Here are three reasons why KFY doesn't excite us and a stock we'd rather own.

1. Revenue Tumbling Downwards

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. Korn Ferry’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 1.8% over the last two years.

2. EPS Growth Has Stalled Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Korn Ferry’s flat EPS over the last two years was weak. On the bright side, this performance was better than its 1.8% annualized revenue declines.

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. Unfortunately, Korn Ferry’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

We see the value of companies helping their customers, but in the case of Korn Ferry, we’re out. That said, the stock currently trades at 14.9× forward P/E (or $74.80 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at the most dominant software business in the world.

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