Hackett Group (HCKT) Margin Compression Challenges Bullish Gen AI Earnings Narrative

Hackett Group FY 2025 earnings snapshot

Hackett Group (HCKT) has wrapped up FY 2025 with fourth quarter revenue of about US$75.8 million and basic EPS of US$0.21, alongside trailing twelve month revenue of US$305.6 million and EPS of US$0.47 that sit against a net profit margin of 4.2% for the period. Over recent quarters, the company has seen revenue move between US$72.2 million and US$77.6 million, while quarterly EPS ranged from US$0.06 to US$0.31 and trailing EPS shifted from US$1.23 to US$0.47, creating a picture where current profitability metrics are compared with forecasts for rapid earnings growth and softer margins.

See our full analysis for Hackett Group.

With the headline results on the table, the next step is to see how these numbers line up against the prevailing market narratives around Hackett Group, including views on its growth potential, margin profile, and overall risk reward balance.

See what the community is saying about Hackett Group

Margins Compress as Net Profit Halves Year on Year

• Trailing 12 month net income dropped from US$29.6 million a year ago to US$12.9 million, with net margin moving from 9.7% to 4.2%, even though revenue stayed close to US$305 million over both periods.
• Critics highlight that weaker profitability complicates the bullish view that Gen AI investments will lift margins, because:
  • Analysts currently expect profit margins to move from 5.5% to 16.4% over three years, yet the latest trailing data points the other way, at 4.2% versus 9.7% last year.
  • Management is still dealing with higher SG&A and restructuring costs, while legacy areas like Oracle Solutions are described as facing a 20%+ year on year revenue hit. This aligns more with the cautious narrative than with a clean margin expansion story.

Premium 29.5x P/E With Debt And Weak Dividend Cover

• The shares trade on a 29.5x P/E versus 22.5x for the US IT industry and 25.4x for peers. The dividend yield is 3.15% but described as not well covered by earnings, and the company is flagged as carrying a high level of debt.
• Bears argue this richer multiple is hard to justify given the balance sheet and payout profile, because:
  • Leverage is called out as elevated at the same time as net margin sits at 4.2%, so the business is running with thinner profit cushions while also supporting interest and principal obligations.
  • The dividend, at 3.15%, is specifically tagged as weakly covered by earnings, which aligns with the cautious view that current profitability leaves less room for error if growth or Gen AI monetization does not arrive as expected.

Bears watching this valuation and payout mix are asking whether income and margin headroom are enough for a 29.5x P/E story. 🐻 Hackett Group Bear Case

DCF Fair Value Signals Upside Versus Current Price

• While the current share price is US$15.22, the stock is assessed as trading about 51% below a DCF fair value of US$31.06, and analysts are also quoted as expecting earnings to grow about 45.8% per year over the next three years on revenue growth of 1.4% per year.
• Supporters of the bullish view lean on this valuation gap and earnings ramp, yet the numbers invite a closer look, because:
  • The same data set that points to US$31.06 DCF fair value also shows trailing EPS sliding from US$1.23 to US$0.47 over the last year, which is very different from the forecast path to US$1.87 EPS by around 2028.
  • Consensus narrative credits AI XPLR, ZBrain and related Gen AI offerings with reshaping the revenue mix toward higher margin, recurring streams, but the latest 4.2% net margin and modest revenue trend of about US$300 million suggest that shift has not yet flowed through to reported profitability.

If you are weighing that US$31.06 DCF fair value against the US$15.22 share price, it is worth seeing how the bullish and cautious cases stack up side by side. 🐂 Hackett Group Bull Case

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Hackett Group on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

With such a mixed set of signals, are you comfortable relying on the headline story alone, or do you want to stress test it yourself before sentiment shifts again? To see how the concerns and opportunities stack up in one place, take a look at 2 key rewards and 3 important warning signs.

See What Else Is Out There

Hackett Group is wrestling with thinner 4.2% net margins, higher SG&A and restructuring costs, elevated leverage and a dividend described as weakly covered by earnings.

If stretched margins, higher debt and fragile dividend cover are making you cautious, consider using our 80 resilient stocks with low risk scores to quickly spot companies with more resilient financial profiles today.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com