Saturday, January 21, 2012

Infosys (INFY) Analysis

Infosys (INFY) is an Indian IT services company that has world wide presence. It gets most of its business from north america (~60%) with significant revenue from Europe and a very small incremental revenue (~2%) from India.

In the last year, the return (excluding dividends) has been -25% for Infosys and overall return for the past five years has been ~-7% excluding dividends.

Let us see if this is a business worth investing in given that it is the premier IT company in India. Revenues per share have grown from 78 cents/share to $12.78/share from 2000 - 2011. Earnings have grown from 24 cents/share in 2000 to $3/share in 2011.

So, it is not the company fundamentals that have caused stagnation in the stock price. It is the unreasonable expectations of the past that have made the stock price a lot higher than it should have been given the fundamentals.

So, is infosys a good investment now? Infosys faces many challenges moving forward - especially an uncertain 2012 with economic turmoil in Europe. The company can't be termed cheap with respect to cash flow or earnings in the U.S market. There are many companies that are cheaper than Infosys in the U.S market at the moment. However, Infosys is a well run company ( no significant dilution to shareholders from 2006 onwards ) with a strong balance sheet and no debt. It should do well over the long haul.

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