Korn Ferry

Korn Ferry earns a 4-star quantitative star rating, illustrating our stance that this share class offers a somewhat attractive opportunity for investors. The stock currently trades at a 6% discount to our quantitative fair value estimate of $76.38 per share, which is reinforced by this estimate's low uncertainty rating.

The firm's profitability strengthens our estimated fair value. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. For example, the firm's earnings yield of 7.6% lies in the top 30% compared with global peers. This suggests that it is generating substantial earnings relative to its share price, which contributes to our view that shares are undervalued.

Alternatively, the firm's balance sheet is potentially concerning. Low leverage can limit a company's ability to invest in growth, potentially reducing shareholder value compared with a balanced use of debt and equity financing. The firm's EBITDA/interest coverage ratio of 24.4, for example, lies in the top 40% globally. The company may have too conservative of a balance sheet based on its high EBITDA/interest coverage ratio, potentially underinvesting in growth opportunities and undermining the long-term trajectory of cash flows. Despite our favorable price/fair value ratio, this characteristic is a negative attribute.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has outperformed the broader universe over the past year. While we believe the stock is undervalued, this outperformance had a negative impact on our valuation estimate.

The company's narrow quantitative moat rating indicates it could outearn its cost of capital and maintain robust margins for 10 years or longer. Its moat is bolstered by its strong financial health, which indicates low near-term bankruptcy risk.